Total annuity sales showed signs of rebounding in the third quarter, but record low interest rates and continued market uncertainty continue to keep many investors on the sidelines, according to the Secure Retirement Institute (SRI).
Preliminary results from SRI U.S. Individual Annuity Sales Survey showed total annuity sales were $54.8 billion in the third quarter, up 13% from the second quarter 2020 but 8% lower than a year ago.
Total variable annuity (VA) sales took a 10% dive from last year in the third quarter to $23.9 billion, but improved 7% over second quarter results. SRI said VA sales were $70.7 billion in the first nine months of 2020, down 6% from the first three quarters of 2019. It is forecasting VA sales to remain steady in the fourth quarter and to reach $89 to $94 billion by the end of 2020.
Todd Giesing, senior annuity research director, noted that even as annuity manufacturers and distributors have largely overcome the operational hurdles caused by Covid-19 and social distancing measures, the market continues to lag 2019 levels because of low interest rates and market volatility.
Consistently a bright spot is registered index-linked annuity (RILA), which saw sales jumped 33% to $6.4 billion. SRI noted that this marks the 23rd consecutive quarter-over-quarter growth for RILA sales. Year-to-date, RILA sales were $15.8 billion, up 26% from 2019 results.
“In this economic environment, RILA products are very attractive to investors seeking downside protection with greater growth potential,” Giesing said in a statement. “In addition, we are seeing more carriers enter the RILA market, also spurring RILA growth.”
Total fixed annuity sales jumped 11% higher over second quarter annuity sales to $30.9 billion in the third quarter but were 6% below last year’s results. SRI noted that in the first nine months of 2020, fixed annuity sales dropped 19% to $88.5 billion. Fixed annuities represented 56% of the total U.S. annuity market.
Also continuing to slide are fixed indexed annuity (FIA) sales, falling 29% to $13.2 billion. Year-to-date, FIA sales totaled $41.4 billion, falling 27% compared with prior year.
Fixed-rate deferred annuity sales were $14.6 billion, up 47% from third quarter 2019. Year-to-date, fixed-rate deferred annuity sales totaled $37.2 billion, 2% lower than prior year results. Giesing said this was the highest sales for fixed-rate deferred annuities since the Great Recession. “For investors seeking a safe place to put their money during this period of increased volatility, there isn’t another product that can compete with fixed-rate deferred crediting rates, which are, on average, 50 basis points higher than CDs,” he said.
However, Giesing said demand for fixed-rate deferred annuity sales have declined and they expect sales will drop to $10 billion to $12 billion in the fourth quarter. But, he said, overall sales should be level with or exceed 2019 sales results, despite the challenging interest rate environment.