Annuities are continuing their record-breaking year. For the second consecutive quarter, these products saw increased sales in LIMRA’s “U.S. Individual Annuity Sales Survey,” reporting $79.6 billion in sales for the third quarter, which represents a 27% increase over a year ago.

The past year has seen a boom in annuities as rising interest rates and volatility have prompted investors to leave the declining stock market. Annuities have become a more attractive alternative, since they offer downside protection and guaranteed returns.

The annuity sales numbers continue to exceed previous records, according to LIMRA, which released its latest figures this week. Todd Giesing, assistant vice president of LIMRA Annuity Research, said that rising interest rates combined with declining valuations in equities are making it a perfect storm for annuities. 

“This is a rare occurrence to see this combination,” he said. “People are looking for protection and safety.”

When the equities markets start to roil, investors traditionally turn to bonds. But since the Federal Reserve began significantly increasing interest rates this year, bonds are not the attractive option they once were. This has allowed annuities, and in particular fixed-rate deferred annuities, to flourish.

Fixed-rate deferred annuities recorded $29.8 billion in sales in the third quarter, which is 159% higher than the third quarter of last year. This is the highest number of sales these funds have ever recorded, according to LIMRA. In the first nine months of 2022, fixed-rate deferred annuity sales have reached $74.4 billion, which was a 77% increase over the year before.

Giesing said that sales for fixed-rate deferred annuities should reach $100 billion by year’s end, shattering the previous record of $80.8 billion, which was set back in 2002.

Fixed-indexed annuities also broke their record, logging $21.4 billion in sales for the third quarter, up 25% from the year before. The previous record was set in the second quarter of 2019, when the products had $20 billion in sales. Overall fixed-indexed annuity sales were up by 22% with a total of $57.4 billion. 

Fixed-indexed annuities have enjoyed the most success because they can provide two things, Giesing said. The first is principal protection, meaning an investor will not lose the money they invest in the product. Second, should the equity markets turn around, they have attractive cap rates coming in at almost double digits, Giesing said. 

Other types of annuities have also continued to enjoy success, including registered index-linked annuities (also known as RILAs), which saw $10.5 billion in sales for a 13% increase in the third quarter. The funds enjoyed a hot start this year, registering $30.9 billion in sales in the first nine months, which is 9% higher than last year during the same period.

Meanwhile, income annuities saw their sales return to pre-pandemic levels. LIMRA said for the third quarter, single-premium immediate annuity sales were $2.5 billion, rising 58% over the third quarter of last year, while deferred-income annuities saw $600 million, a rise of 18%.

Overall, single-premium immediate annuities, also known as SPIAs, have seen sales of $6 billion for the first nine months, which is 28% higher than last year. Sales of deferred-income annuities, or DIAs, rose by 3% during that period, with $1.5 billion in sales. Looking ahead, LIMRA expects income annuities to continue this upward trend and grow more than 10% overall for the year and continue to increase until 2026. 

Not all annuities have seen the same levels of success, and some have even found it difficult to find their footing in this market. That includes variable annuities, which saw their sales fall 37% to $13.7 billion in the third quarter. That’s the lowest sales have been for VAs since 1995. For the first nine months of the year, variable annuity sales have totaled $48.5 billion, which shows a 25% decrease from the same period last year.

VAs are at a disadvantage more than other annuities because they are based on equities, Giesing said. The stock market continues to suffer, and bad economic news curtails people’s desire to invest in any stock-based products.

“There is not a good outlook going for equities,” he said. “It will be a very challenging environment for those looking to purchase VAs.”

Given the sour prospects, LIMRA anticipates that VA sales will drop more than 20% by the end of the year, Giesing said. He added that it will take them five years to return to the sales levels they enjoyed in 2021, which was $86.6 billion.

While the numbers for the other annuities have been good thus far, Giesing believes that the third quarter will see a peak, and that the overall sales numbers will start to cool in the fourth quarter. The reason is that short-term interest rates are starting to rise, and if other interest-rate based products start to compete with fixed annuities, investors may take their money outside the annuity world.

“If we get to a point where the short-term rates rise more rapidly and you can get six months or one-year rates that are more competitive than what we're seeing currently with the fixed-rate deferred market, that may temper this growth,” he said.