Fixed annuity sales set for massive spike

Rising interest rates primarily responsible for estimated 50% spike in sales of fixed-rate deferred annuities through 2019, says insurance industry group Limra.
JUN 07, 2018

Fixed-rate deferred annuities are poised for a huge jump in sales over the next two years, as rising interest rates and a potentially faltering equity market push consumer money into the products at near-record levels, according to Limra, an insurance industry group. Limra, which tracks annuity data, projects fixed-rate deferred annuity sales will increase 15%-20% year-over-year in 2018, and an additional 20%-25% next year. That estimate would put annual sales north of $50 billion by 2019, which is nearly 50% greater than the $34 billion last year but still shy of the record — more than $60 billion, which occurred during the financial crisis as investors flocked to more conservative investment products. Todd Giesing, the director of annuity research at Limra, attributes the expected spike primarily to a continued rise in interest rates. The yield on the benchmark 10-year Treasury note topped 3% in late April for the first time since 2014. (It's since dipped slightly since mid-May, to around 2.95%.) Rising bond yields bode well for insurance companies, which use fixed-income instruments in their general accounts to underpin annuity products. Higher yields means insurers can offer a higher guaranteed interest rate in products like fixed-rate deferred annuities, which lock up investor assets for multi-year periods at a given rate. (More:10 IBDs with the most variable annuity revenue) Moody's Investors Services, the economic data that Limra uses in its analyses, also previews an equity market downturn in 2019 — which would likely push investor money from equities to fixed annuity products if it occurs. "It's been a while since we've had a down market, so we could see a lot of people try to lock in their gains and protect principal," Mr. Giesing said. Limra's forecast for fixed-rate deferred annuities piggybacks on a generally improving environment for all annuity products, particularly due to regulatory rollbacks in addition to rising interest rates. "We've taken away the big headwind from the regulatory pressures of the DOL fiduciary rule," Mr. Giesing said. The Department of Labor's fiduciary regulation, which sought to eliminate conflicts of interest in retirement accounts like IRAs, was seen a big reason for declining sales in annuities last year, especially for variable and indexed annuity products. The 5th Circuit Court of Appeals struck down the rule in March, and the court is soon expected to officially take the rule off the books. Limra expects all annuity sales to increase 5% to10% year-over-year in 2018, and up to 5% next year.

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