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 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 2016 estimated U.S. fixed annuity sales were $109.3 billion, up 11.1 percent from 2015. This was a record setting year for fixed annuity sales. However, sales declined each quarter dropping from $30.0 billion in the first to $23.8 billion in the fourth.
The greatest annual percentage category gain was 18 percent as fixed rate annuity sales, including both market value adjusted (MVA) and non-MVA, increased from $31.3 billion to $36.7 billion. Fixed index annuity sales increased from $54.6 to $60.1 billion. Fixed income–deferred income annuities (DIA) and immediate income annuities–slipped one percent from the previous year to end up at $12.4 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. Four of the top ten selling fixed annuities were fixed index, three were fixed rate (non-MVA) with two fixed rate (MVA) and one fixed income (SPIA) completing the field.
The first quarter of the year is typically the weakest, but, as mentioned, 2016 was the exception. Sales in fixed rate and fixed income annuities slipped each quarter, while fixed index annuity sales bumped up in the second quarter, only to fall back in the rest of the year. Even though this was a record year, fourth quarter fixed annuity sales were 20 percent lower in the fourth quarter than in the first.
Interest Rate Trends
Overall interest rates were lower at the end than at the beginning of the year. The Advantage Insurer Bond Yield Index had the overall average yield on new bonds purchased by insurers at the end of 2015 at 4.74 percent and at 4.28 percent at the end of December, 2016. Going forward, interest rates are muddled as uncertainty about the future direction of the stock market and global economy continues.
When it came to fixed annuity rates the year ended where it began. The average yield on five-year multiple year guaranteed annuities (MYGA) was 1.91 percent in December, 2015, and 1.92 percent in December, 2016; rates fell to a low of 1.5 percent during the summer before rebounding.
Best Selling Products By Channel
The top 10 selling products in the independent channel space and top nine in the independent broker/dealer channel are all fixed index annuities; in the wirehouse space fixed index annuities had eight out of ten slots. This contrasted sharply with the large regional broker/dealer channel where only one index product cracked the top ten; in this channel fixed rate (MVA) were balanced with fixed income annuity products. In the bank channel, fixed rate annuities had the edge.
Distribution Trends
In 2016 captive and independent agents were responsible for 49.3 percent of total fixed annuity sales, down from over 60 percent five years prior. Also in 2016 banks did 24.8 percent of sales with wirehouses and broker/dealers contributing 24.2 percent—up almost four percent from 2015; direct sales were at 1.7 percent.
Independent agent sales changed a smidgen as more sales were with fixed rate annuities. Fixed index sales slipped as a part of the whole.
The Forecast
My concern last year was that although first quarter sales had been strong, there was confusion caused by the Department of Labor’s ineptly written revision to fiduciary standard rules affecting qualified funds that would cause all annuity sales to fall as the year progressed; that is what happened. 2016 was a record year for fixed annuities, but sales would have been, perhaps, $10 billion higher if not for the disarray caused by trying to interpret what the DOL was saying. 2017 opened with the same DOL fog in place. I won’t even hazard a guess as to how this year will shape up for fixed annuity sales.
