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.