Variable annuity sales continued on a downward trend during the first quarter, declining 18.5 percent from $31.8 billion to $26 billion, according to new sales figures from the Washington, D.C.-based Insured Retirement Institute.
Variable annuity sales were $30.9 billion during the fourth quarter of 2015.
Anticipation of the U.S. Department of Labor’s fiduciary rule may be partly to blame for a sustained shift in the annuities market toward fixed products and away from variable products, which were expected to be more tightly regulated under the rule. In addition, market volatility and the lasting effects of the Great Recession have led to more conservative financial attitudes among consumers, which favor fixed products.
“It appears that a rough start for the markets in 2016 had a significant impact on first-quarter sales,” said Kevin Loffredi, senior product manager at Morningstar Inc., of the decline in variable annuity sales. “In particular, we saw a 28 percent drop in sales from December to January. However, in February and March, we saw healthy gains in month-over-month sales of 15.4 percent and 5.2 percent, respectively, as markets stabilized and then recovered.”
IRI bases its sales results on data from Beacon Research and Morningstar Inc.
The difficult market for variable annuities is contrasted by stronger sales gains for the fixed annuity market, which helped drive overall annuity sales to $56.7 billion during the quarter, up 7.6 percent from $52.7 billion during Q1 2015. Industrywide sales of all annuities were down 4.1 percent from $59.1 billion during the fourth quarter, however.
Fixed annuity sales accounted for $30.7 billion of the total, a 47.2 percent increase from sales of $20.9 billion during the first quarter of last year and an 8.8 percent increase from sales of $28.2 billion during the fourth quarter. Beacon Research said fixed annuity sales during the first quarter reached their highest level in seven years.
“We are seeing the dynamics of an ever-changing market, where a full suite of strategies are now being employed to provide guaranteed lifetime income,” said Cathy Weatherford, president and CEO of IRI. “Retirement planning is now more than ever multidimensional. As a result, we are seeing a broadened product shelf being used in a holistic way to solve for a wide array of individual needs. An ever growing suite of retirement income products including income annuities, fixed-rate annuities, and both fixed indexed and variable annuities with guaranteed living benefits are available to advisors to help their clients address the various risks they face in retirement, including longevity risk, sequence of returns risk, inflation risk, and liquidity risk.”