Inflation and volatile equity markets have bedeviled Wall Street and policy makers, but one sector that doesn't seem to be bothered by the adversity is the annuities industry.
Annuities have been enjoying record sales in recent months, and market watchers attribute much of the success to investors fleeing for safety in the face of a sinking equities market, preferring to move money to instruments with guaranteed returns and downside protection.
Meanwhile, the Federal Reserve's aggressive rate increases to combat inflation have afforded annuity companies the opportunity to up the payouts offered on their annuity products.
In the second quarter, according to LIMRA, total U.S. annuity sales increased 22% to $77.5 billion, shattering a record set in 2008 during the Great Recession by nearly $9 billion.
“Continued equity market declines and rising interest rates drove investors to purchase record-level fixed-rate deferred annuities in the second quarter,” Todd Giesing, assistant vice president, LIMRA Annuity Research, said in a press release last month. “Our research shows fixed-rate deferred annuity manufacturers are, on average, offering interest rates more than four times that of a bank CD, which has made these products a tremendous value for investors looking for protection and growth potential.”
Fixed rate deferred annuities had more than $44.6 billion in sales for the first half of this year, which is an increase of 46% from the year before, according to LIMRAs' U.S. Individual Annuity Sales Survey,
Dylan Tyson, president of retirement strategies at Newark, N.J.-based Prudential, said the firm is seeking positive numbers in particular with its focal product, FlexGuard.
“Ultimately, products like FlexGuard and other products that we offer benefit from the higher interest rates,” he said. “It allows us to provide excellent upside potential for customers and very attractive downside protection.”
Jared Nepa, vice president and national sales manager of annuities at Philadelphia-based Lincoln Financial Group, concurred, stating that his firm has also seen positive inflows into the firm’s annuity products, but declined to provide specifics.
Nepa said the average investor is currently looking for a perfect combination of protection and growth, which annuities can provide.
“Clients want to have their cake and eat it too,” he said. “They want protection but they don’t want to give up the upside, so it’s really been a perfect storm.”
But industry officials noted that in times of high uncertainty about the markets and the economy, as is the case now, downside protection is seen as especially valuable by investors.
“During periods of inflation, fixed indexed annuities may be more attractive to some investors because they offer some protection from market risks with the opportunity for greater returns if the markets perform well,” Mike Morrone, vice-president of annuity product development at Columbus, Ohio-based Nationwide, said in an email.