The market for fixed indexed annuity (FIA) is strong and rapidly growing. FIA sales increased 24 percent during the past year, rising to $48 billion in 2014, according to a recent study from the Insured Retirement Institute (IRI), 2015 Fixed Indexed Annuity Distribution Trends.
The IRI study surveyed 15 broker-dealers/distributors across all third party channels to form a picture of how the landscape for these products is evolving, and how distributors are managing the rapid growth of FIAs. It revealed that fixed indexed annuities (FIAs) are quickly becoming a more important part of broker-dealers’ annuity business. FIAs accounted for about 10 percent of total broker-dealer annuity sales in 2014—and half of broker-dealers expect this percentage to grow in 2015 and beyond, according to the survey.
About sixty percent of firms surveyed for the study say that annuities comprise between 10 percent and 25 percent of their total product sales. Approximately 78 percent of survey respondents said their FIA sales are growing either modestly or significantly, while the remainder said that sales were holding steady. None of the survey participants said FIA sales were declining.
Respondents cited five top factors they expected to drive future FIA sales growth:
- Higher interest rates;
- Lifetime income benefits similar to those offered with variable annuities;
- Concern that lifetime income benefits may be less generous in the future;
- Value of principal protection with some upside potential; and
- Persistent low interest rates.
While it seems paradoxical that study participants said that both higher interest rates and persistent low interest rates could potentially drive FIA sales in the future, the report explains that this accounts for two different perspectives. “In a persistent low interest rate environment, sales are boosted by the product being an attractive alternative to low interest products such as CDs. As rates rise, index options become less expensive and FIAs are able to provide more upside potential, making the product more attractive from a growth standpoint,” the report states.