With the Department of Labor’s fiduciary rule cleared up and the Fed planning to raise interest rates, insurance agents, advisors, and insurers are enjoying increasing revenues from annuity sales.
Annuity sales made a comeback in the second quarter, according to insurance industry trade group LIMRA, reversing a 16-year low in sales in the first half of last year. Sales of all types of annuities rose to $60 billion, an increase of 10%.
What made the second quarter results different than previous years was simultaneously increasing sales of fixed annuities and variable annuities — a phenomenon LIMRA said it hadn’t recorded since 2011. LIMRA’s Secure Retirement Institute attributed the rise in annuity purchases to greater clarity surrounding the Department of Labor’s fiduciary rule standard. An expected uptick in interest rates was also a contributing factor.
Fixed Annuities Performing
Within the three broad types of annuities, fixed annuities still saw the biggest hike in sales. Fixed annuity purchases soared 18% in the second quarter compared to a year ago for total sales of $34 billion.
Percentage growth of fixed indexed annuities (FIAs) wasn’t far behind. Sales of this product increased year-over-year by 17% to reach $18 billion, which surpassed a sales record set in 2015. In the first half of this year, FIA sales climbed 14% to $32.1 billion. LIMRA forecasts FIA sales will rise between 5% and 10% this year, hitting a record sales sum of $60 billion.
Q2 purchases of variable annuities also swelled: a 2% growth surge in sales pushed variable annuities to a total of $26 billion. In addition, variable annuity sales for the first half of the year matched the prior year’s total of $50.4 billion. This year’s variable annuity sales total will continue to rise, but only at a 5% pace, LIMRA predicts.
Between January and June, overall annuity sales amounted to $115.3 billion, 5% more than in the prior-year period. Looking ahead, LIMRA anticipates annuity sales will jump by 5% to 10% in 2018, with a 5% gain next year.
As sales of annuity products rose, so did the money collected by annuity issuers. FIA revenues grew 18% to $33.7 billion, LIMRA reports. Reversing 17 consecutive quarters of revenue drops, variable annuities took in $25.8 billion, which comes out to a 2% increase.
Is Now the Time to Buy?
Retired clients, or those getting ready to retire, may start getting curious about annuities, especially since rising interest rates will increase the potential benefit of these products. While that may be true, annuities are complex financial products with their own pros and cons.
For interested clients, annuities offer a steady stream of income — even after consumers leave the workforce. Similar to 401(K)s, any money put into an annuity isn’t taxed until the policyholder starts taking payments.
On the other hand, annuity fees can be high, and it’s not always easy to access the money. For example, if a policyholder withdraws funds before the start date, the individual will pay a surrender penalty.
As with any insurance contract, you should review your client’s financial situation to find an annuity that meets their income needs. Fortunately, with the Fed poised to raise interest rates, many of your clients may want to have that conversation in the near future.