Boosted by a predicted strong second half of 2016, indexed annuity sales are projected to increase by 15% to 20% compared to 2015 and top $60 billion this year, according to analysts at the LIMRA Secure Retirement Institute. But those same analysts say this year’s gains will likely be erased in 2017 due to implementation of the revised fiduciary rule.
“For eight consecutive years, indexed annuities have enjoyed significant growth. Based on current sales trends, existing economic conditions and the imminent regulatory changes, we expect indexed annuity sales to accelerate in the second half of the year,” said Todd Giesing, assistant research director, LIMRA Secure Retirement Institute. “However we expect the sales gains attained in 2016 to be erased in 2017 when the Department of Labor (DOL) fiduciary rule goes into effect.”
Nearly two thirds of indexed annuity sales in 2015 ($34 billion) were funded through IRAs or rollovers from retirement accounts (qualified assets). Once the DOL fiduciary rule is fully implemented, financial professionals who sell indexed annuities purchased with qualified assets will need to use the BIC exemption process to prevent these sales from being considered “prohibited” transactions.
“The challenges of implementing the BIC exemption will have a negative impact on indexed annuity sales in 2017,” Giesing said. “For that reason, we are projecting a 30-35% decline in indexed annuity sales in 2017, bringing sales totals down to 2013 levels (nearly $40 billion).”
The DOL fiduciary rule also will have a significant impact on independent agents who work through Independent Marketing Organizations (IMOs). This distribution channel accounted for two thirds of the indexed annuities sold in 2015.
Under the new DOL rule, IMOs are not recognized as financial institutions. As such, these organizations cannot execute the best interest contract with the policyholder on behalf of the agent. While industry analysts expect many IMOs will eventually change their status and become Broker-Dealers, which are recognized as financial institutions by the DOL, there will likely be others who leave the market or consolidate with another organization, shrinking the overall channel’s reach.
“While all of this sounds very dire, we believe the demand for principle protection and investment growth with an option for guaranteed income from future retirees will spur innovation – both in distribution and product design,” Giesing said. “As companies acclimate to the new regulatory environment, our expectations are for indexed annuity sales to experience growth in 2018 and beyond.”
• Thoughts about these projections, or the first wave of IMOs applying for “financial institution” status? Please visit this thread: IMOs starting to apply for “Financial Institution” status
About LIMRA: Since 1916, LIMRA, a worldwide research, learning and development organization, has been the trusted source of industry knowledge, helping more than 850 insurance and financial services companies in 64 countries. To learn more about LIMRA’s 100th Anniversary Celebration, please visit www.limra.com/100years