Investment News’ Darla Mercado predicts that the “New year could bring a boon for annuities.” She mentions variable and indexed annuities in particular. Increasing taxes and interest rates are likely to spark not only sales of variable and indexed annuities, but also development of new products. Rising interest rates typically bring about increases in product development. We saw the biggest increases in May and June of this year, although the Fed says that they will keep the benchmark interest rate low as long as inflation stays below 2%. Lower interest rates increase the demand for indexed annuities over other investments that are based on interest rates. Indexed annuity sales have already been increasing this year. They went from $7.8 billion in the first quarter of 2013, to $9.2 billion by the second and more than $10 billion in the third.
Tax bills for many Americans will be increasing when they file this April. This will generate interest in both indexed and variable annuities. But the biggest effect will be felt with variable annuities because of a change in capital gains tax rates. The variable annuity industry welcomes this new interest in their products because sales have not been increasing this year. Variable annuity sales by quarter in 2013 were $34.2 billion, $36.9 billion, and $34.7 billion, respectively. A big change started this year in regards to variable annuities and it will likely continue into the next year. Products are now more often divided into two categories: those offering lifetime income benefits or those offering large gains. Most companies are slowly phasing out variable annuities that offer both of these benefits.
The top seller of variable annuities, Jackson National, sells a lot of products without living benefits. They say that clients and advisors alike see the value of these annuities. Their Elite Access variable annuity with no living benefits accounted for $3 billion of their $15.5 billion of variable annuities through the first three quarters of 2013. Jefferson National also sells a lot of variable annuities that do not have living benefit riders. Some people do prefer variable annuities with living income benefits. There will be more risk managed investment options with these particular variable annuities in the coming year.
Indexed annuities are going to be sold by many more insurance companies in the coming years, as well as more banks and wirehouses. Allianz Life introduced a new line of indexed annuities only for wirehouses and broker dealers. In just one year, independent agents went from selling 90% of all indexed annuities down to 80%. Banks and wirehouses both increased their indexed annuity sales significantly over that year. One expert predicts that indexed annuity sales will be $37.8 billion in 2014. There are a lot of new faces selling indexed annuities now because the financial environment is right. Both living benefits and guaranteed minimum death benefits are likely to get increased attention from insurers. 2014 could be an important year for sales and new development of variable and indexed annuities.
Written by Rachel Summit