The numbers don’t lie: Fixed indexed annuities (FIAs) are hot.
According to LIMRA Secure Retirement Institute’s U.S. Individual Annuities Sales Survey for the fourth quarter, FIA sales enjoyed their best quarter — and year — ever. Whole-year 2015 FIA sales rose to an all-time high of $54.5 billion, representing a 13 percent increase over 2014 levels. FIA sales for the fourth quarter exploded to $16.1 billion, a whopping 32 percent higher than the same period of 2014.
“Indexed annuity sales have experienced eight consecutive years of positive growth,” Todd Giesing, assistant research director for LIMRA Secure Retirement Research, noted in a prepared statement. “The growth was driven by many companies, rather than just the top players as we have seen in the past. We also are seeing some companies who have traditionally been strong in the variable annuity market, focusing more attention on the indexed annuity market.”
At the same time that FIA sales have skyrocketed, sales of variable annuities have been falling. Variable annuities sales for 2015 dropped five percent from 2014 levels, while fourth-quarter sales decreased seven percent to $31.7 billion from the same quarter a year earlier, the lowest level since the first quarter of 2009. However, sales of all variable annuities are still more than double the sales of FIAs.
Cerulli Associates’ annual report on annuities and insurance for 2015 reveals that variable annuity (VA) flows peaked nine years ago in 2007, “at the height of the living benefit arms race, and subsequently plunged during and after the financial crisis,” according to the report. “VA flow growth has been non-existent over the past few years as insurers move away from selling living benefits.”
“The total annuity industry sales growth in 2014 was fueled mainly by fixed-indexed annuities,” says Bing Waldert, a director at Cerulli. “Fixed-indexed annuity sales are surging, largely due to their living benefits and bonuses.”
Waldert says that FIA sales are growing because these products have started to look much more attractive to investors lately.
“This rally can be attributed mainly to the shortage of other options available to income-seeking investors, such as bonds and traditional variable annuities,” he says. “However, Cerulli believes that insurers should be aware of not overcomplicating product designs as they seek to broaden the FIA’s market.”
According to independent research produced by Beacon Technology Partners and sponsored by Athene that looks at advisors’ attitudes and their experience with fixed indexed annuities, FIAs constitute the lion’s share of annuity revenue for survey participants. Seven in 10 advisors sold at least one FIA product to a client in the previous year, and participants said FIAs constituted 53 percent of their annuities sales, more than double the percentage of variable annuities sales.
According to responding advisors, the chief advantages of FIAs that are helping to increase the product’s market share include protection from loss with upside earning potential, lifetime income option, higher potential returns than CDs, tax deferral, appropriateness for IRA plans and flexible indexed-linking options.