In the glum theater of annuities, registered index-linked annuities have been the breakout star, and according to Cerulli Associates, the products are going to shine brighter in the next few years as advisors warm up to them.

Sales of these products, known as RILAs, or sometimes “buffered annuities,” reached $39 billion in sales in 2001, which was 17% of all annuities sales, and they’re set to reach $50 billion by 2026, according to Cerulli, the Boston-based research firm.

The firm released the findings in its report, “U.S. Annuity Markets 2021: Acclimating to Industry Trends and Changing Demand.”

“With more brand name insurers entering the space, RILAs have gained market attention, setting new records annually,” said Cerulli in a press release announcing the report. “Sales reached $11 billion in 2018 and more than doubled in 2020 to reach $24 billion. Driven by broker/dealer and advisor awareness and understanding, large insurers entering the space, and increasing supply, RILA product sales could hit $50 billion by 2026 if recent trends continue.”

Registered-index linked annuities are tax-deferred annuities designed for retirement. They don’t invest directly in stocks, but their values are tied to stock market indexes through options with different termination dates, and this allows the product to offer upside and downside buffers. Holders can put a floor on their losses, for example, allowing the insurance company to absorb the first 10% of a market drop. But the upside might also be capped at 10% appreciation. These products are sometimes referred to as hybrids of variable annuities and fixed-index annuities, and they allow holders to build growth without paying taxes until it’s time to withdraw.

The products were first rolled out in 2010 by AXA Equitable. Since then, companies like Jackson National Life, Lincoln Financial, DPL Financial-Allianz Life Insurance, Athene USA, the CUNA Mutual Group have come into the arena. It “took some time for other large reputable insurers to take notice,” Cerulli said. “By 2018, RILA sales reached $11 billion and more than doubled by year-end 2020, reaching $24 billion.

“For some insurers, RILAs are now their flagship products, replacing traditional [variable annuities] with living benefits,” said the Cerulli report. “Several companies have made no secret of the fact that they are using the RILA to pivot away from risky guaranteed living benefits. Because the client is willing to assume some investment risk, insurers are currently able to offer more attractive index caps on RILAs than on [fixed-index annuities].”

Cerulli said that 15 new registered index-linked annuities were registered in 2021, up from five the year before. The firm said that traditional variable annuities will likely represent less than a third of 2021 annuity sales, down from their 62% share in 2010.

“A potential drawback of RILAs,” said Cerulli, “can be the number of potential index/crediting/buffer/floor combinations in any given product. This can become overwhelming to advisors and cause them to tune out. Cerulli would advise insurers against overloading their RILAs with features that may prove confusing even to seasoned professionals, not to mention their clients.”