Signs of Annuity Market Stabilization After DOL Fiduciary Rule Derailment

The Insured Retirement Institute (IRI) has published final first quarter 2018 sales results for the U.S. annuity industry, based on data shared by Beacon Research and Morningstar, Inc.

The groups report that industry-wide annuity sales in the first quarter of 2018 totaled $50.5 billion, a 1.2% increase over sales of $49.9 billion during the fourth quarter of 2017. This represents a 0.6% increase from sales of $50.8 billion in the first quarter of 2017.

According to figures provided by Beacon Research, fixed annuity sales during the first quarter were $27.6 billion, a sizable 6.7% increase over fourth quarter 2017 sales of $26.0 billion and a 0.8% increase from sales of $27.5 billion during the first quarter of 2017. Morningstar’s data shows variable annuity total sales were $22.9 billion in the first quarter of 2018, making for a 4.2% decrease from sales of $23.9 billion in the prior quarter, and a 1.7% decline from sales of $23.3 billion in the first quarter of 2017.

Commenting on the new data, Cathy Weatherford, IRI president and CEO, says she sees pretty clear evidence that annuity sales will strengthen in the years ahead, despite recent regulatory challenges causing marketplace disruption.

“Our research shows that American consumers planning for, and living in, retirement need and desire solutions that can provide them with income they cannot outlive, and that can help protect the financial assets they’ve worked so hard to build,” she adds.

The strongest growth figures come from Beacon, which reports fixed indexed annuity sales also rose, by 4.6% relative to the fourth quarter of 2017, and by 12.3% over the first quarter of 2017. Overall, fixed annuity sales were comprised of approximately $15.1 billion in qualified sales and $11.1 billion in non-qualified sales during the first quarter of 2018.

“Fixed indexed sales came roaring back in the first quarter as market volatility picked up and consumers sought the relative safety and growth potential of fixed indexed annuities,” explains Beacon Research CEO Jeremy Alexander. “We are seeing both increased demand for principal guarantee fixed indexed products, and a rapidly developing market for structured annuities, where downside risk is shared by the consumer and insurer. We expect this market to continue to gain strength.”

Additional data from Morningstar demonstrates variable annuity net assets fell 1.6% to $1.95 trillion during the first quarter of 2018, versus fourth quarter 2017 net assets of $1.99 trillion. On a year-over-year basis, assets rose 0.6%, from $1.94 trillion at the end of the first quarter of 2017. Net flows in variable annuities were negative $18.4 billion in the first quarter, Morningstar reports. Within the variable annuity market, there were $14.5 billion in qualified sales and $8.4 billion in non-qualified sales during the first quarter of 2018, with both qualified and non-qualifies sales down versus the fourth quarter of 2017.

“Variable annuities continue to face challenges regaining their footing in the wake of transaction processing disruptions born of the past few years’ efforts to comply with the now vacated Department of Labor (DOL) fiduciary rule, coupled with increased market volatility and negative net flows putting pressure on asset values,” concludes John McCarthy, senior product manager at Morningstar. “However, we expect sales to recover as business processes normalize and sales increase in newer product types, such as structured and fee-based annuities.”