While new annuity products will help drive growth in the space in the New Year — particularly via a surge in income-oriented annuity sales as interest rates rise — the annuity industry is also bracing for potentially negative repercussions brought on by the Department of Labor’s pending fiduciary rule.
The Insured Retirement Institute, the annuity trade group, warned in a December report that DOL’s rule to amend the definition of fiduciary on retirement accounts, which recently survived an omnibus spending bill rider threat, is “a wild card that all eyes across the industry will be watching.”
The final form of the rule, which is due out likely in early 2016, will determine the “level of disruption to the lifetime income industry and the consumers it serves,” IRI said.
The IRI report notes that annuity providers are “well-positioned” headed into 2016, with strong liquidity and balance sheet fundamentals. In addition to healthy financials, the fact that interest rates may soon begin to rise “should ease macroeconomic headwinds bearing on the lifetime income market.”
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If interest rates reach or exceed 3%, IRI said, income-oriented annuity sales will likely “increase significantly.”
New product launches in the New Year include investment-oriented variable annuities (IOVAs), new product designs of fixed indexed annuities, and the introduction of new deferred income annuities that meet the vriteria to be considered Qualifying Longevity Annuity Contracts — deferred income annuities that are available in IRAs and workplace plans.
Cathy Weatherford, president and CEO of IRI, said in releasing the report that the large cohort of retirees “will live longer in retirement than any generation before, and will be more responsible for their financial security,” which presents a “tremendous opportunity for the retirement income industry,” with market participants expanding and filling out “their product shelves to meet this growing need.”
Sales of IOVAs have increased 94% during the past five years and now make up 16% of total variable annuity sales, the report notes.
Fixed indexed annuities are experiencing “strong sales,” IRI’s report says, “as a fixed income substitute and on the attractiveness of optional guaranteed lifetime income benefits.” Sales of FIAs have increased 50% since 2011.