Annuity sales falter, but clients flock to this product

Trader Talk

The economic fallout from the coronavirus is tilting the annuity marketplace in favor of structured products even as overall sales falter.

Sales of buffered variable annuities — also known as registered index-linked annuities (RILAs) — soared by 38% year-over-year to reach $4.9 billion for the first quarter, according to the LIMRA Secure Retirement Institute. The volume was nearly the highest of any quarter since the products first launched in 2010, and the organization predicts RILA sales will rise by more than 10% this year.

Low interest rates drew clients to structured products in the first quarter, boosting the fastest growing segment of the annuities market, Sheryl Moore, CEO of Wink, wrote in the research firm’s quarterly sales report. However, total annuity sales slipped by 4% to $52.7 billion, according to the firm.

“It is amazing that annuity sales are only down in the single digits, given the devastating effects that COVID-19 has wreaked on the annuity industry,” Moore said in a statement.

Sales of fixed index annuities and other fixed contracts have fallen well behind their record pace of a year ago, slumping 21% to land at $29.9 billion for the first quarter. Structured contracts drove up variable annuity sales by 14% to $26 billion.

Jackson National Life Insurance was the No. 1 carrier with a market share of 9.5%, according to Wink. Jackson’s Perspective II variable annuity remained the top-selling product for the fifth straight quarter.

Among structured writers, Equitable led the way with a market share of 25.1%, while Lincoln Financial Group’s Level Advantage B Share netted the highest sales. Increasing volatility in the economy from the coronavirus pushes up crediting rates, or yields, in RILAs above those of fixed index annuities, according to Todd Giesing, SRI’s senior annuity research director.

“RILAs are positioned to do well under these economic conditions,” Giesing said in a statement.

Fixed index annuity sales, on the other hand, dropped 10% year-over-year to $16.2 billion, their third straight quarter of declines from the year-ago period. The volume could fall by about 20% in 2020, due to the low interest rates that are reducing yields for fixed index annuities, SRI’s latest forecast shows.

Variable annuity sales could also tumble by 10% this year due to the Fed’s rate cut in March, Giesing says.

“Sales of VA [variable annuity] products in 2020 will mirror the trajectory we saw following the Great Recession,” he said. “Market volatility and low interest rates will force companies to carefully manage their VA business, limiting sales — especially products with [guaranteed lifetime benefit] riders.”

Other products have already taken a hit to their sales. Single premium immediate annuity volume plummeted by 32% to $1.9 billion — their lowest quarterly total in nearly seven years. SRI predicts income annuities of all types to plunge by more than 35% in 2020.

If the 2008 financial crisis is any indication, however, fixed-rate deferred products should maintain their sales of last year as clients seek protection of principal in the turbulent economy, according to SRI. In a reflection of changing economic conditions, the contracts slipped by 35% year-over-year to $9.8 billion but increased by 4% on a sequential basis.

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