In the second quarter, total U.S. annuity sales increased 16% to $79.4 billion, as measured by LIMRA’s U.S. Individual Annuity Sales survey, which represents 90% of the market.
Leading the way were fixed-rated deferred annuities (FRDs), which posted their best quarterly results ever: Sales totaled $28.7 billion, a whopping 79% higher than a year earlier.
“All fixed products showed positive growth,” said Todd Giesing, assistant vice president of LIMRA Annuity Research in Windsor, Conn., in a press release.
Safer Investments, Without Downward Price Fluctuations
He attributed the record numbers to a flight to safety during volatile equity markets, helped by rising interest rates. “With average yields at or above 3% for fixed-rate deferred annuities, it’s a rate environment we haven’t seen in a long time,” Giesing noted.
Fixed-rate deferred annuities are contracts that offer a fixed annual percentage yield and tax-deferred growth, typically at a higher rate of growth because of the lack of liquidity; instead of an income stream over a specified period of time, annuitants receive a lump sum payment at the end of the contract.
“Fixed annuity rates have adjusted rapidly this year, following the rate increases in the 10-year Treasury,” said Jason Branning of Branning Wealth Management in Ridgeland, Miss. “Given equity and bond volatility, many consumers are attracted to the rates many fixed annuities are offering and the stability of asset values of a fixed contract. Fixed annuities continue offering better rates than many bonds with a similar risk profile.”
Cyrus Bamji, chief communications officer at the Washington, D.C.-based Alliance for Lifetime Income, noted that thousands of Americans are retiring every day—and the majority of them are uncertain about their financial future. “It’s more than just a flight to safety that’s going on,” he says. “It’s a flight to protection,” Bamji said.
Ranking The Carriers
Giesing said the carriers that fared best in the quarter were “those with a diversified suite of annuity product offerings.”
To some industry watchers, that makes perfect sense. “Larger carriers offering multiple annuity lines are able to leverage shifts in product desirability and channel activity, as they offer most or all types of annuities and have a presence in all channels,” said Frank O’Connor, vice president of research at the Insured Retirement Institute in Washington, D.C.
The No. 1 seller of annuities of all types for the quarter was New York Life, with $11.2 billion in annuity sales. The second highest seller was AIG Cos. at $9.7 billion. Then came Massachusetts Mutual Life ($8.3 billion), Jackson National Life ($8.2 billion), and Equitable Financial ($7.7 billion). Jackson National was also the top purveyor of variable annuities.
The Life Of RILAs
The second best-selling type of annuity in the quarter were registered index-linked annuities (RILAs), a type of variable annuity (VA) that credits owners with a percentage of market index gains and limits the losses. Though pegged to an equity index, RILAs offer downside protection with generous upside potential.
That’s a combination that’s made them incredibly popular in recent years. For the second quarter, RILA sales were the highest they’ve ever been, gaining nearly 8% year-over-year to $10.8 billion. They now make up 40% of overall VA sales.