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LIMRA Predicts Drop in Annuity Sales

After the fate of the DOL fiduciary rule was decided and it was determined that the implementation date is indeed quickly approaching, LIMRA released its forecast for sales of U.S. annuities, and it isn’t all sunshine and rainbows. Overall, the group predicts that individual annuity sales will decrease between 5 and 10% in 2017, according to a recent article from InsuranceNewsNet. The forecast also includes a drop in indexed annuity sales, which would be the first of its kind in nearly 10 years.

According to LIMRA, the predicted drop in sales will carryover into 2018, dropping an estimated % from year-end 2017. Assistant research director at LIMRA Secure Retirement Institute, Todd Giesing, claims that the nervousness about the Department of Labor’s fiduciary rule has counteracted any benefits seen due to rising interest rates in the annuity market. Also to blame, a shift toward annuities without income riders. But it isn’t all doom and gloom.

LIMRA SRI also reported that sales of fixed-rate deferred annuities are projected to grow by as much as 5% this year and by another 15-20% in 2018. Last year, this sector rose an astonishing 25% to $39 billion. Additionally, policy makers have claimed that they would not hesitate to raise interest rates again in the coming year as unemployment falls and the economy rebounds.

But the fixed indexed annuity (FIA) market, which has seen tremendous growth in recent years, is expected to be hit the hardest, the LIMRA SRI forecast found. If the forecast holds, it would be the first drop in FIA sales in a decade, said Giesing. About 60% of all FIA sales are conducted through independent agents, a sales avenue that will no longer exist once the fiduciary rule is in place. Raising the standards of investment advice into retirement accounts, the fiduciary rule will be applied on June 9, albeit a  “soft implementation,” with a review set before the full application of the rule on January 1.

Several exemptions will allow distributors a period of grace, but softening sales are an indication that some insurers, agents and distributors have opted for a wait-and-see approach.

“While we typically see a seasonal decline in the first quarter, we suspect there are some companies re-evaluating their product mix in anticipation of the DOL rule,” Giesing said. “Unless there is a change in the DOL fiduciary rule rollout, we are anticipating indexed sales in 2017 to decline for the first time in a decade.”

In the first quarter of this year, FIA sales fell 13% to $13.6 billion compared with the year-ago quarter, LIMRA recently reported.

Another sector expected to record losses is the variable annuity market, which dropped 21% to $105 billion last year. LIMRA has predicted an additional 10-15% decrease in 2017, and a continued fall in 2018. If VA sales drop below $100 billion this year, it would be the first time since 1998 that the market has seen such numbers.

Variable annuity sales have been steadily declining in recent years has insurers backed away from guaranteed living benefits and “managed down” their exposures.

“Sales with a guaranteed living benefit continued to decline at a much faster rate than products without,” Giesing said.

Living benefit riders keep insurance companies “on the hook for long-term payouts” and raise their liability exposures. Nearly ⅔ of all variable annuities come with some form of guaranteed living benefit.

Index variable annuity sales rose in the first quarter, according to LIMRA, but these annuities don’t come with benefit riders. Also, income annuities, a significantly smaller segment of the fixed annuity industry, rose 2$ to $12 billion last year. These increases are predicted to be short-lived, with predictions calling for a 5-10% drop in 2017.

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