Fiduciary Rule Requirements Disrupting Annuity Market

Annuity sales during the first half of the year fell to a point not seen since the first half of 2001, according to research by the LIMRA Secure Retirement Institute. 

The organization reports that total annuity sales for the first half of 2017 decreased to $105.8 billion, marking a 10% decline from the first six months of 2016.

LIMRA notes that second quarter results for total annuity sales rose slightly from last quarter to $53.9 billion, but they still reflected an 8% decline from this quarter last year. U.S. variable annuity sales in particular were $24.7 billion in the second quarter, down 8% compared with prior year results. This marks the 14th consecutive quarter of decline in variable annuity sales.

However, LIMRA says this is also the sixth straight quarter fixed sales have outperformed variable annuity sales, which hasn’t happened in almost 25 years.

“A closer look at what’s driving the drop in VA [variable annuities] sales reveals qualified VA sales have experienced a more significant decline than non-qualified VAs,” notes Todd Giesing, director of annuity research, LIMRA Secure Retirement Institute. “VA qualified sales were down 16% in the second quarter, while nonqualified sales were actually up 5%. This could be in reaction to the DOL fiduciary rule.”

Sales of fee-based variable annuities increased in the second quarter to $570 million, representing 2.3% of the total variable annuity market. LIMRA says that while this is a small portion of the overall variable annuity market, these products have seen continued growth over last year. Back in December 2016, research firm Cerulli Associates published a report indicating the fiduciary rule could drive reconsideration of fee-based annuities. The report also projected U.S. variable annuity sales to decline by at least 10% through 2018 as the industry adapts to regulatory changes under the rule.

Many annuity providers argue they won’t be able to meet the best-interest contract exemption (BICE) requirements, because of the commission-focused distribution structures of fixed-indexed annuities. Therefore, many could turn to fee-based products.

The second quarter 2017 Annuities Industry Estimates can be found at LIMRA.com.