Total fixed-rate deferred annuity sales hit a record high in the second quarter, reaching $28.2 billion, which was 76% higher than a year earlier, according to LIMRA. In the first half of the year, fixed-rate deferred annuities totaled $44.1 billion, a 44% increase compared with last year.
Fixed indexed annuity sales were $19.7 billion in the second quarter, up 19% from prior year, and were $36 billion for the first half, a 20% increase from last year.
"Both FIAs and fixed-rate deferred products benefited from the significant interest rate increases in the second quarter," Giesing in a prepared statement. "Coupled with a nearly 20% equity market decline, investors sought out principal protection and growth potential, which these products offer."
Firms have been responding to the rising interest rates by offering increased rates of their own.
Lincoln raised its rates in May and July this year as much as half a percentage point for some age groups, while Nationwide raised its rates on multiple products more than 25 times this year, according to each firm. Prudential increased FlexGuard’s rates six times since the beginning of the year, Tyson said. He pointed to a recent example where the firm increased the upside growth potential for a popular protection strategy, which was the S&P 500 index, six-year-term, 20% buffer cap rate strategy. It was initially 175% and the firm uncapped it.
Another result of the increased interest rates has been a shift in the types of investors that have been looking to put their money in annuities, according to industry officials. In April, Lincoln conducted a survey of millennials and found that 80% of them are seeking products, including annuities, that offer growth and protection.
“We’re starting to see different consumers starting to dip their toe into the water,” Nepa said. “When you get some tailwind for rates, you start to get a new consumer starting to be interested ... and putting [a retirement product] into their portfolio a little earlier in their plan.”
Franklin, Tenn.-based Jackson National Life Distributors is among the companies that sees the high-interest-rate environment as an opportunity.
“The higher interest rate environment has allowed us the ability to increase the attractiveness of some of our benefit features on our flagship [variable annuity] living benefit offerings and VAs with guarantees,” Brian Sward, executive vice president and head of product solutions at Jackson, said in a statement.
It appears the conditions that have led to record sales for annuity companies will continue for the foreseeable future. Fed Chairman Jerome Powell announced last week in Jackson Hole, Wyo., that the central bank will continue to be aggressive in increasing interest rates to combat inflation.
To get the message about annuities out, firms are stepping up their messaging with financial advisors highlighting the advantages annuities have in this current market.
“Not every financial advisor is as used to being able to incorporate holistic portfolios that include both market value approaches ... but also instruments that have protected outcomes,” Tyson said.
Nepa expressed confidence in Lincoln’s variety of annuity products, saying they can accommodate all investors regardless of the markets.
“We want to be sure that our portfolio is broad enough so that when the trends shift, we’re able to shift with that trend,” he said.