Annuity sales to plunge under DOL fiduciary rule

U.S. variable annuity and fixed indexed annuity sales are expected to decline by at least 10 percent through 2018 as the industry struggles to adapt to upcoming regulations put forth by the Department of Labor, according to Cerulli Associates.

The Boston-based global research and consulting firm states in its research that while insurers are trying to grow their businesses in the face of obstacles regarding “benefit hedging, product derisking, and the sustained low-interest-rate environment,” Cerulli sees the biggest challenge for the foreseeable future is DOL’s fiduciary rule, formally called the conflict of interest rule.

Insurers’ responses to the new regulatory landscape will significantly impact the future of VA and FIA sales. “In order to ensure future relevance, insurers must examine both the pricing and positioning of their products,” says Donnie Ethier, associate director at Cerulli.

The Insured Retirement Institute found that industrywide annuity sales in the third quarter totaled $51.3 billion, an 8.2 percent drop from sales of $55.9 billion during the second quarter of 2016, and a 12.3 percent decline from $58.5 billion in the third quarter of 2015.

As a percentage of sales, IRI reported that fixed indexed annuities now make up 57.6 percent of the fixed annuity market. For the entire fixed annuity market, there were approximately $15 billion in qualified sales and $11 billion in nonqualified sales during the third quarter of 2016, IRI said.

Cerulli says interest in I-share (fee-based) VA products has been “slowly growing” within the industry over the past few years, as most insurers and distributors believes they’ll be needed to comply with the DOL rule.

“Adoption of the fee-based model has been mostly overlooked by the industry,” Ethier says. “However, what was once considered an opportunity is now a necessity.”