2018 Fixed Annuity Study

    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.

    Beacon Research offers a suite of products to access industry leading annuity data mined from industry filings, researched from company websites, collected from annuity issuers and rigorously quality-checked by experienced data analysts and issuing companies. Beacon Research provides the most comprehensive and accurate fixed and variable contract and sales data in the industry. They can be contacted at 800-720-3504 or on the web at www.beaconresearch.net.

     

    Overview
    For calendar year 2017 estimated U.S. fixed annuity sales were $100.3 billion, down 8.7 percent from 2016. However, sales were weaker in the last half of the year than in the first.

    All fixed annuity segments took hits. Fixed rate annuity sales, including both market value adjusted (MVA) and non-MVA, decreased from $36.9 billion to $33.1 billion. Fixed index annuity sales dropped from $60.6 to $56.8 billion. Fixed income—deferred income annuities (DIA) and immediate income annuities—dropped 15 percent from the previous year to end up at $10.5 billion.

    Product Trends
    Once again, the Allianz 222 was far and away the top selling fixed annuity, followed by New York Life Secure Term MVA Fixed Annuity. Four of the top ten selling fixed annuities were fixed rate (non-MVA), three were fixed index, two were fixed rate (MVA) and one fixed income (SPIA) completed the field.

    The first quarter of the year is typically the weakest, but, once again, 2017 was an exception. Overall sales rose nine percent in the first quarter of 2017 when compared to the fourth quarter of 2016, trickled up a bit higher in the second quarter, before splashing down 13 percent in the third. Overall, the fourth quarter recovered some of the loss, but was still lower than when the year began. However, both fixed index and fixed income annuity segments closed with stronger final quarters 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 2016 at 4.28 percent and at 3.78 percent at the end of December 2017. In recent months interest rates have trended upwards as confidence in the economy strengthened.

    Fixed annuity rates ended the year barely higher than where they began. The average yield on five-year multiple year guaranteed annuities (MYGA) was 1.92 percent in December 2016 and 2.04 percent in December 2017; rates fell to a low of 1.8 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 company with two index products cracked the top ten; in this channel fixed rate (MVA) were the ones. In the bank channel, fixed rate annuities also had the edge.

    Distribution Trends
    In 2017 captive and independent agents were responsible for 46.4 percent of total fixed annuity sales, down from over 65 percent five years prior. Also in 2017 banks did 26.2 percent of sales with wirehouses and broker/dealers contributing 25.7 percent—up almost four percent from 2015; direct sales were at 1.7 percent. 

    Independent agent sales changed back to pattern as fixed index sales gained as a part of the whole.

    The Forecast
    The $9 billion drop in fixed annuity sales was due to continued uncertainty over the future of the Department of Labor Fiduciary Rule Revision. Fixed annuity sales recovered in the first half of 2017 as it appeared the rule would be neutered and then took a big drop as summer ground on and it appeared nothing was being settled. In March of this year the 5th Circuit Court of Appeals vacated the entire DOL revision, ruling that the agency exceeded its statutory authority. As of this writing, it appears the DOL’s ill-conceived and poorly-written rule is dead. What this means is the industry can get back to doing their job of creating and providing solutions that protect American consumers. The forecast is fixed annuity sales are headed back up.

    Jack Marrion provides research and consulting services to insurance companies and financial firms in a variety of annuity areas. He also serves as director of research for the National Association for Fixed Annuities and as a research fellow for Webster University.

    In 1994 he wrote a book to help banks market investment and insurance solutions to their small business clients. In 1996 he produced the first independent hypothetical return monthly publication comparing all index annuities on the market, and in 1997 created the first comprehensive report of index annuity sales, products and trends, “Advantage Index Product Sales & Market Report” (quarterly).

    His insights on the annuity and retirement income world have appeared in hundreds of publications. In 2006 the National Association of Insurance Commissioners asked him to address their annual meeting and teach regulators the realities of index annuities. He was invited back in 2009 to talk to the NAIC about the effects of aging on senior decision-making. He is a frequent speaker at industry functions.

    Prior to forming Advantage Com­pen­dium, Marrion was president and owner of an NASD broker/dealer with offices in nine states. Previous to that he was vice president of a life insurance company and vice president of an NYSE investment banking firm. He has a BBA from the University of Iowa, an MBA from the University of Missouri, and a doctorate from Webster University.

    Marrion can be reached at Ad­van­­tage Compendium. Telephone: 314-255-6531. Email: ­[email protected].