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.
“RILAs fill a gap in the product landscape,” said David Blanchett, the Lexington, Ky.-based head of retirement research at PGIM, the investment management group of Prudential. RILAs “allow investors [and/or] advisors a lot more personalization around the types of risk they’d like to take. I honestly see a lot of room for growth still in the RILA space.”
With their downside protection and as-good-as-if-not-better-than-bonds upside potential, RILAs “are addressing a few consumer concerns, especially given this year’s stock and bond market volatility,” said Branning.
VA Reversal
Traditional VAs, however, did not fare well in the quarter. As a group, their sales fell 27% from the corresponding period last year, to $16.5 billion—the lowest quarterly results for the category since 1995.
An obvious reason: market jitters. Traditional VAs are tied to the stock market, with no downside protection.
Other Fixed Products
Other types of fixed annuities did well, too. Fixed-indexed annuities (FIAs), which are similar to RILAs except the upside potential is less generous and the downside is locked at zero, brought in $19.7 billion in the quarter, a gain of nearly 28% year-over-year. Again, these reflect a flight to safety. Since you cannot lose money with FIAs, they are as safe as CDs or investment-grade bonds (though in an up market they pay better).
Single premium immediate annuities (SPIAs), the oldest type of annuity contract, purchased with a large upfront payment for a guaranteed income that can begin immediately, had total sales of $2 billion in the quarter, up 11% year-over-year. Sales of deferred income annuities (DIAs), which pay a fixed rate at a later date, slipped nearly 4% in the quarter, compared to the second quarter of 2021, to $520 million.
Shifting Sales Channels
Perhaps more surprising, annuity sales through national full-service broker-dealers were up 55% in the quarter, while those through independent broker-dealers fell 12%. At the same time, sales through banks advanced 48%.
“Banks and the full-service national broker-dealers are driving this record-setting growth,” said Giesing. “Independent broker dealers have not taken advantage of the rising rates and growth in FRDs.”
Demand for annuities is likely to keep rising as more Americans retire, said Bamji at the Alliance for Lifetime Income. “Recent Alliance research shows that more than a third of current annuity owners would actually consider adding another annuity to their portfolio,” he said.
Advisors who aren’t at least considering annuities as a solution shouldn’t be surprised if their clients turn elsewhere for advice, Bamji said. “Many advisors who had little true understanding of annuities in the past [are] finally becoming wise to the various protection benefits annuities offer in a truly diversified portfolio,” he said. “The bottom line is that the antidote to risk is certainty, and annuities provide certainty.”