Variable Annuity Heavyweight Warns of Declining Market

Sales of variable annuities have been steadily declining over the last two years, and a top executive of one of the country’s biggest variable annuity sellers warns that the market is close to bottoming out. According to a recent article from InsuranceNewsNet, president and CEO of Lincoln Financial, Dennis R. Glass, described today’s retirement climate as one funded by consumers as defined benefit plans continue to disappear. This makes guaranteed lifetime income, a feature of many annuities, especially attractive to most planning their financial future. But for many, those plans are currently on hold as the confusion of the Department of Labor’s fiduciary rule is sorted out.

The implementation date of the fiduciary rule is quickly approaching (June 9), requiring agents who sell variable annuities do practice under a best interest threshold. The rule was designed to protect investors and raise the standards for investment advice in retirement accounts. But many distributors remain confused about the rule.

“I think the whole market – candidly both the qualified and the nonqualified business – is being affected by the uncertainty created by this rule,” Glass said. Distribution partners are “waiting for certainty so they can formalize what their practices and policies are going to be, so I’m hopeful that we’re going to get to that certainty sooner rather than later and I think that will help annuity sales overall,” he continued.

Lincoln Financial recently reported that first-quarter operating revenues generated by the annuity market increased 2.1% to $1 billion compared to last year. However, annuity deposits dipped 14% to $2 billion during the same time period. Lincoln Financial, ranked the sixth seller of variable annuities in 2016, sold $6.6 billion in new variable annuity contracts last year. That’s a significant decrease from the $11.2 billion in 2015. Across the sector, new sales of variable annuities in 2016 fell 21.4% to $101 billion.

“Annuities are sold and not bought, that’s true, but they need to be nurtured at the broker-dealer and if the home office isn’t encouraging reps to nurture them and tell people how to use them, then interest in the product will wane,” said Keven Loffredi, senior product manager with Morningstar.

In four years, new variable annuity sales have decreased every year, from $141.2 billion in 2013 to $101 billion in 2016, according to Morningstar data.

The Associated Press announced last Wednesday that despite a drop in variable annuity sales, Lincoln National still delivered first-quarter profits of $1.89 per share. Earnings, adjusted for investment costs, were $1.92 per share, $0.30 more than analysts projected.

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