The author would like to thank Jeremy Alexander and Monika Hunsinger of Beacon Research for allowing access to their comprehensive store of annuity sales data and granting permission for a portion of this research to be shared.
Data for this article was drawn from the Beacon Research “Fixed Annuity Premium Study,” the only ongoing study to report and analyze U.S. fixed annuity sales at a product level. The study reports sales data provided quarterly by participating insurance companies as well as results reported in statutory filings and other publicly available sources. Beacon checks this data for general reasonableness, but does not perform independent audits. Beacon uses this data to estimate overall sales and sales by product type.
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Overview
For calendar year 2015 estimated U.S. fixed annuity sales were $98.4 billion, up 7.5 percent from 2014. This was the best year for fixed annuity sales since 2009. Sales steadily grew each quarter from $20.9 billion in the first to $28.2 billion in the fourth.
The greatest annual percentage category gain was 14 percent as fixed index annuity sales increased from $48.0 to $54.6 billion. Fixed rate annuity sales (including both market value adjusted (MVA) and non-MVA) were 2 percent higher than in 2014, closing out 2015 at $31.2 billion. Fixed income (deferred income annuities (DIA) and immediate income) slipped 4 percent from the previous year to end up at $12.5 billion.
Product Trends
Once again the Allianz 222 was the top selling fixed annuity in the nation, followed by New York Life Secure Term MVA Fixed Annuity; rounding out the top three was American Equity Bonus Gold. Five of the top ten selling fixed annuities were fixed index, three were fixed rate (non-MVA) with one fixed rate (MVA) and one fixed income (SPIA) completing the field.
The first quarter of the year is typically the weakest, and 2015 was no exception. The two stories here are that DIA and income annuities were down sharply for the first half of the year – a 15 percent decrease from the first half of 2014, but made up most of that loss with a strong final half of the year. The second story was the steady growth of fixed index annuities leading to another record with $16.1 billion purchased in the fourth quarter alone. To give that record some perspective, more fixed index annuities were purchased in the fourth quarter than were purchased in the entire last millennium.
Interest Rate Trends
Overall interest rates were higher at the end than at the beginning. The Advantage Insurer Bond Yield Index had the overall average yield on new bonds purchased by insurers at the end of 2014 at 4.14 percent and at 4.74 percent at the end of December 2015. Going forward, interest rates are again heading down as uncertainty about the future direction of the stock market and global economy continue.
Higher bond yields translated into more favorable annuity rates. The average yield on five-year multiple year guaranteed annuities (MYGA) increased a quarter point going from 1.66 percent to 1.91percent by December. Although fixed index annuity interest caps also generally increased during the year, the driver for increased fixed index annuity sales was the new story offered by a flood of new volatility-controlled-index crediting methods.
Best Selling Products By Channel
The top ten selling products in the independent channel space are all fixed index annuities. In the bank channel, fixed rate annuities had the edge. In both the wirehouse and independent broker-dealer space fixed index annuities had seven out of ten slots. This contrasted sharply with the large regional broker/dealer channel where index products did not crack the top ten; in this channel fixed income annuity products were the mainstay, supported by fixed rate (MVA).
Distribution Trends
In 2015 captive and independent agents were responsible for 53.2 percent of total fixed annuity sales. Also in 2015 banks did 24.7 percent of sales with wirehouses and broker/dealers contributing 20.6 percent—up over two percent from 2014—and direct sales were at 1.6 percent.
Independent agent sales became even more concentrated with almost nine in ten happening in the fixed index annuity channel; seven out of ten fixed annuity sales in the independent broker/dealer channel occurred in index annuities as well as four out of ten bank sales.
The Forecast
I made the right call on bond rates moving up and was too chicken to make any other prediction last year. My fowl mood continues on declining to make predictions; there are too many unknowns.
As I write this interest rates have headed down since the start of the year and the stock market has moved up, but where they go from here I have no idea. The uncertainty out there should continue to drive people to fixed annuities, but there are no guarantees this will happen.
This spring the Department of Labor announced dramatic revisions to fiduciary standards associated with qualified accounts that will have profound effects on fixed annuity distribution. Although none of the revisions go into effect until the spring of 2017, I am concerned that this mandate will cause a drop in 2016 sales as producers spend more time worrying and less time selling.
