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Individual annuity considerations surpass $50B again in Q3

After trending lower for the past several years, individual annuity considerations have rebounded in 2018.

A much better overall environment, the elimination of the Department of Labor's Conflict of Interest Rule and higher interest rates have helped fuel the growth in individual considerations this year. The 10-year Treasury benchmark ended the third quarter just above the 3% mark, up 70 basis points year over year. The higher interest rate environment allows insurers to increase benefits, which in turn makes annuities more attractive to consumers.

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According to sales survey data from LIMRA, fixed-annuity products are primarily driving the growth in individual considerations. LIMRA reported that fixed annuity sales are up 18% year over year, compared to only 4% for variable products.

While fixed annuities have surpassed variable annuities in total sales over the past few years, one type of variable annuity product is becoming a more popular option for consumers. Sales of registered indexed-link annuities, or RILAs, were almost $3 billion in the third quarter, accounting for 12% of all variable annuity sales in the period. RILA sales totaled $7.7 billion during the first nine months of the year, an increase of 13% when compared to the same period in 2017.

RILAs, once known as structured or buffered variable annuities, are hybrids of fixed-indexed and variable annuities. They are similar to fixed-index annuities in that they provide market loss protection, but insurers limit the upside potential clients may receive. The cap on market performance with RILAs is generally higher than fixed-index products. Fixed-index annuities provide 100% market loss protection, while customers with RILAs could see some losses.

Lincoln National Corp. launched its RILA product, Level Advantage, on May 21. The insurer reported third-quarter sales of $266 million. Lincoln CEO Dennis Glass during a recent earnings call said that Level Advantage was the company's "most successful product launch ever." Brighthouse Financial Inc. reported that its Shield product had $867 million in sales during the third quarter, representing 58% of its total annuity sales.

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In aggregate, U.S. life insurers have seen total individual considerations increase 11.5% through the third quarter, and half of the largest annuity underwriters posted year-over-year growth in individual considerations. Several companies including Prudential Financial Inc., Lincoln, Massachusetts Mutual Life Insurance Co., and American International Group Inc. reported double-digit increases.

Though not one of the largest annuity writers in the U.S., Global Bankers Insurance Group LLC has been one of the fastest-growing writers thus far in 2018. Since a series acquisitions in February 2017 that more than doubled the size of the company, Global Bankers' individual considerations have skyrocketed to $691.0 million in the third quarter of 2018 compared to only $68.3 million in the first full quarter following those deals. Through the first nine months of 2018, Global Bankers' considerations grew to $1.4 billion, an increase of 681.0% from the prior-year period.

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Individual annuities refer to fixed and variable annuities and is reported as ordinary within NAIC statutory statements. Group annuities include investment options typically available in tax-advantaged savings accounts and guaranteed investment contracts. Quarterly statutory statements combine first-year, single and renewal considerations and do not separate ordinary considerations by product type.

S&P Global Market Intelligence uses statutory total annuity considerations to determine market share. Total annuity consideration is a preferred indicator of market share as it not only reflects new business but also the persistence of a company's existing business in the form of renewal annuity considerations. Additionally, many policyholder acquisition costs are not recovered within one year. As such, total annuity considerations can also be a better indicator of profitability for life insurers, whereas new sales do not necessarily equate with profitability.

S&P Global Market Intelligence provides links to external sites where these offer further, relevant information to our readers. While we ensure that such links are functional at the time of publication, we are not responsible in instances where those links are unavailable later.

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Click here to view a template that shows life companies' market share by line of business.