Despite Weak 3Q Sales, Fixed Annuities Remain Near Historic Highs

WASHINGTON, D.C. – The Insured Retirement Institute (IRI) today announced final third-quarter sales results for the U.S. annuity industry, based on data reported by Beacon Research and Morningstar, Inc. Industry-wide annuity sales in the third quarter of 2017 totaled $43.7 billion, a 13.3 percent drop from sales of $50.4 billion during the second quarter of 2017, and a 14.8 percent decline from sales of $51.3 billion in the third quarter of 2016.

According to Beacon Research, fixed annuity sales during the third quarter of were $22.7 billion, a 15 percent decline from second quarter sales of $26.7 billion and a 12.5 percent decline from sales of $26.0 billion during the third quarter of 2016. Variable annuity total sales were $20.9 billion in the third quarter of 2017, according to Morningstar. This was an 11.6 percent decrease over sales of $23.7 billion in the prior quarter, and a 17.5 percent decline from sales of $25.4 billion in the third quarter of 2016.

"An uncertain regulatory environment continued to disrupt annuity sales in the third quarter," said IRI President and CEO Cathy Weatherford. "The ambiguity introduced into the marketplace by the partial implementation of the DOL fiduciary rule has interrupted consumers' access to financial products that are critical to a financially secure retirement. IRI is optimistic that recent drops in annuity purchases are a function of short-term regulatory disruption, and the needs of the thousands of Americans retiring each day will drive a strong recovery as manufacturers and distributors adapt to regulatory changes."

According to Beacon Research, while sales of all fixed annuities fell in the third quarter, fixed indexed sales saw the lowest drop in sales, falling 9.2 percent to $13.6 billion from second quarter sales of $14.9 billion and comprising 59.6 percent of total fixed annuity. For the entire fixed annuity market, there were approximately $12.7 billion in qualified sales and $10.0 billion in non-qualified sales during the third quarter of 2017.

"While fixed annuity sales fell in the third quarter, they are still near historic highs as distribution of fixed and fixed indexed annuities continue to broaden," said Beacon Research CEO Jeremy Alexander. "As manufacturers and distributors adapt to regulatory headwinds and ambiguity in the regulatory environment is resolved, we expect to see a strong recovery in sales volume."

 

Fixed Table 1. Quarterly Annuity Sales by Product Type
($Millions)	9/30/17	6/30/17	3/31/17	12/31/16	9/30/16
Total Sales (Rounded)	22,726	26,745	25,866	23,807	25,980
Book Value	4,287	5,711	5,913	4,366	4,582
Market Value Adjusted	2,564	3,294	3,847	2,995	3,635
Indexed	13,555	14,929	13,574	13,921	14,972
Income	2,320	2,811	2,531	2,525	2,792

Source: Beacon Research Fixed Annuity Premium Study

 

Fixed Table 2. Quarterly Market Share by Product Type
(As a percent of total sales)	9/30/17
Indexed	59.6%
Book Value	18.9%
Market Value Adjusted	11.3%
Income	10.2%

Source: Beacon Research Fixed Annuity Premium Study

 

According to Morningstar, variable annuity net assets fell 1.4 percent to $1.96 trillion during the third quarter of 2017, versus second quarter net assets of $1.98 trillion. On a year-over-year basis, assets were up 1.9 percent, from $1.92 trillion at the end of the third quarter of 2016, as positive market performance outweighed the impact of lower sales and negative net flows. Net flow in variable annuities were -$14.8 billion in the third quarter. Within the variable annuity market, there were $13.2 billion in qualified sales and $7.8 billion in non-qualified sales during the third quarter of 2017. Qualified sales fell 14 percent from second quarter sales of $15.3 billion, while sales of non-qualified variable annuities fell 7.1 percent from second quarter sales of $8.4 billion.

 

"The variable annuity business continues to face challenges as distributors adjust to changes made in the wake of the DOL fiduciary rule, and advisors adapt to new business processes," said John McCarthy, Senior Product Manager at Morningstar. "However, we now see almost 40 percent of variable annuity assets in allocation funds, with the bulk of those assets under lifetime withdrawals benefits, versus 33 percent in the second quarter. This shift toward the asset allocation asset class provides diversification to VA owners in the event of a market correction, and a secure source of income."

 

Variable Table 1. Variable Annuity Net Assets
($ Millions)	9/30/17	6/30/17	3/31/17	12/31/16	9/30/16
Total Net Assets	1,357,995	1,3976,235	1,941,226	1,896,741	1,920,970

Source: Morningstar, Inc., and Insured Retirement Institute

 

Variable Table 2. Quarterly Variable Annuity Total premium & Net Sales*
($ Millions)	9/30/17	6/30/17	3/31/17	12/30/16	9/30/16
Total Sales	20,932	23,680	23,299	24,413	25,362
Net Sales**	-15,858	-14,810	-17,803	-4,525	-10,763
Net Sales as % of total sales**	-75.8%	-62.5%	-76.4%	-18.5%	-42.4%

Source: Morningstar, Inc.

 

*Total Premium Sales, also called Total Premium Flows, Net Sarepresents the sum of new sales [all first-time buyers of a contract, including inter- and intra-company exchanges] and additional premiums from existing contract owners.  les, also called Net Flows, represents Total Premium Sales minus surrenders, withdrawals, inter- and intra-company exchanges, and benefit payments.

**Morningstar estimates net sales based on a calculation methodology used across all investment universes for which Morningstar collects and publishes asset and performance data, including global open end mutual funds, separate accounts, and exchange traded funds.

 

Variable Table 3. Variable Annuity Assets by Asset Class
(As a percent of total assets)	6/30/17
Equity	33.4%
Allocation	39.2%
Fixed Accounts	17.5%
Bonds	8.8%
Money Market	1.1%

Source: Morningstar, Inc.

 

Morningstar, Inc.: Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $200 billion in assets under advisement and management as of September 30, 2017. The company has operations in 27 countries.

 

Beacon Research: Beacon Research is an independent research company and application service provider founded in 1997 and based in Northfield, Ill. Beacon tracks fixed and variable annuity features, rates and sales. Its quarterly Fixed Annuity Premium Study is the first and only source to analyze fixed annuity sales at the product level, and the first to make a decade's worth of sales information available to subscribers online at http://ift.tt/1LOrxeY. Beacon lowers compliance risk and increases fixed annuity sales with 100% carrier-approved, comprehensive product profiles, spreadsheets and search tools for the advisor/rep websites of banks, TPMs, broker-dealers and marketing organizations. Carriers and financial institutions use its systems at www.annuitynexus.com for compliance review of 1035 exchanges, sales support, conservation and product research. Beacon also licenses information to other platforms. Directly and through licensees, Beacon information can be accessed by hundreds of financial institutions and thousands of advisors.

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