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Record-Breaking Quarter for Indexed Annuities, But What’s to Come?

Second quarter annuity sales results were recently released by LIMRA Secure Retirement Institute in their Second Quarter U.S. Annuity Sales survey. Fixed indexed annuity products broke sales records during the second quarter. Ironically, last week I blogged about the anticipated 30% decline in fixed indexed annuity sales. What will happen in the FIA industry depends on who you ask, but what is known is that these products have a strong demand from consumers and have been hot sellers in 2016. LIMRA’s sales data was summarized by Insurance News Net in the article “2Q FIA Sales Shatter Quarterly All-Time Record.”

Second quarter fixed indexed annuity sales were 30% greater in 2016 than in 2015. The $16.2 billion in sales were more than indexed annuity sales in any other quarter during the product’s history. Indexed annuity sales are at $31.9 billion for the first half of 2016, which is 32% higher than the first half of last year. LIMRA believes that fixed indexed annuity sales will be above $60 billion by the time that 2016 ends. Declining interest rates are the major factor contributing to increasing indexed annuity sales. Consumers are looking for a safe way to hopefully grow their money. FIA markets are competitive right now because many people have replaced variable annuities with this safer variety of annuity. Independent broker-dealers have seen much success with sales of fixed indexed annuities because of this economic factor.

Indexed annuities were not the only fixed annuity type to see sales increases during the second quarter. Fixed-rate deferred annuities, like book value and MVA products, had sales of $10.5 billion. That was a 46% increase over last year. These products’ sales are up 67% from last year for the first half of the year. Fixed immediate annuity sales were up 14% to $2.5 billion. Their $5 billion in sales for the first half of the year was a 19% increase over last year.

Income annuities have been a big focus this year for both insurers and consumers. LIMRA expects fixed immediate income annuity sales to have double digit growth this year and be above $10 billion. Deferred income annuity sales were $870 million during the second quarter, an increase of 43%. This is the highest ever sales quarter for the relatively newer DIAs. All but one of the top ten deferred income annuity sellers had sales growth higher than 25% during the second quarter. Deferred income annuity sales for the first half of the year are $1.6 billion, a 37% increase from last year. Most experts believe that these products will continue to see strong growth through the rest of the year and likely end with sales above $3 billion.

Total fixed annuity sales were $31.5 billion during the second quarter, an increase of 32%. Fixed annuity sales are up 39% for the first half of the year for a total of $63.8 billion. While traditional fixed annuity products will not be affected by the DOL fiduciary rule that takes effect next year, fixed indexed annuity products will. The industry will have to adapt and sales figures will likely shift dramatically. Variable annuity products will also be affected by the DOL rule. These products have already seen sales declines with second quarter sales down 25% to $26.9 billion. First half of the year VA sales of $53.5 billion were 22% lower than last year. These sales figures for variable annuity products are also record breaking, but not in a good way. Variable annuity sales are expected to decline even more over the next couple of years. Low variable annuity sales brought the total annuity sales figures way down, so the industry ended the quarter down 3% with total annuity sales of $58.4 billion.

Sales of fixed indexed annuities were record breaking during the second quarter of this year, but will likely be affected by the DOL fiduciary rule in 2017. LIMRA believes that despite declining variable annuity sales, the growth of each type of fixed annuity product will help keep sales flat this year rather than down.

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