The Income Challenge

Fixed Annuity Sales Hit Record $117.4 billion in 2016

WINDSOR, Conn., February 24, 2017 – In 2016, total fixed annuity sales hit a record-breaking $117.4 billion, 14 percent higher than 2015 levels and nearly $7 billion higher than 2009 (when sales were last at their highest), according to LIMRA Secure Retirement Institute’s Fourth Quarter U.S. Annuity Sales survey.

After strong results in the first three quarters, fixed annuity sales fell 13 percent to $25.7 billion in the fourth quarter.

“Unlike the last several years where indexed annuities propelled overall fixed annuity growth, in 2016, fixed-rate deferred was the primary driver of fixed sales in 2016,” said Todd Giesing, assistant research director, LIMRA Secure Retirement Institute. “A large block of fixed-rate deferred annuities purchased in 2009 came due in the first half of the year, creating a significant amount of money in motion.”

In the fourth quarter, sales of fixed-rate deferred annuities, (Book Value and MVA) fell 9 percent, to $7.7 billion. In 2016 fixed-rate deferred product sales were $38.7 billion, up 25 percent. The Institute expects sales to rebound in the first quarter 2017, responding to the post election interest rate spike late in 2016.

As projected by the Institute, fixed indexed annuity (FIA) sales also hit record levels in 2016, up 12 percent to $60.9 billion.

A Q4 dip, but fixed products outpace 2015

“Despite lower than expected sales in fourth quarter (down 13 percent from prior year), fixed annuities held on to break its 2015 sales record. This marks the ninth consecutive year of growth for FIAs,” noted Giesing. “We have noticed FIA sales have declined quarter over quarter since the Department of Labor (DOL) reclassified FIAs under the best interest contract exemption. Until there is some clarity on the DOL fiduciary rule, the Institute expects sales to continue to drop in 2017.”

Despite the 85 basis point jump in the 10-year Treasury interest rate, fixed immediate annuity sales fell 23 percent in the fourth quarter to $2.0 billion. In 2016, fixed immediate income annuities grew 1 percent to $9.2 billion.

Deferred income annuity (DIA) sales fell 30 percent in the fourth quarter to $575 million. Year-end DIA sales increased 4 percent to $2.8 billion.

“Until yields come up, consumers are going to resist giving up liquidity for the guaranteed income offered through income annuities,” said Giesing. “That said, demographics are in our favor, we expect slow steady growth in the income annuity market.

VA Sales down 20%

Variable annuity sales totaled $25.3 billion, down 20 percent in the fourth quarter. VA sales have been below $30 billion every quarter of 2016. Total VA sales were $104.7 billion in 2016, 21 percent lower than 2015 and a decline of over $28 billion compared to last year. This represents the fifth consecutive year of VA sales declines. VA sales are nearly $80 billion lower than their peak in 2007 and are at lowest level since 1998.

“Aside from the DOL fiduciary rule, one of the factors driving VA sales declines has been a drop in sales of products with guaranteed living benefit riders,” noted Giesing. “LIMRA Secure Retirement Institute is expecting sales of variable annuities with a GLB rider to be around $50 billion in 2016. This is a decrease of nearly $20 billion from last year, and a drop of over 50 percent from just 5 years ago.”

Total annuity sales were $51.0 billion in the fourth quarter, falling 17 percent from the prior year. This is the third consecutive quarter of decline in overall annuity sales and the lowest quarterly sales since the first quarter 2002. For the year, total annuity sales fell 6 percent to $222.1 billion.

To view the fourth quarter results, please visit 2016 Annuity Industry Estimates. To view variable, fixed and total annuity sales over the past 10 years, please visit Annuity Sales 2007–2016. The Institute will release the top 20 annuity manufacturer rankings in mid-March, following the last scheduled earnings release from survey participants.

LIMRA Secure Retirement Institute’s fourth quarter U.S. Individual Annuities Sales Survey represents data from 96 percent of the market.