Total U.S. annuity sales hit an all-time record of $181.1 billion during the first half of 2023, climbing 27% from a year earlier, LIMRA reported Aug. 29.
Although second-quarter sales fell short of their first-quarter record high, they still jumped 10% year-over-year to $87.1 billion.
“Economic conditions — particularly equity market performance and interest rates — have shifted but continue to be favorable for the annuity market.,” Todd Giesing, assistant vice president, LIMRA Annuity Research said in a press release.
Registered indexed-linked and fixed-indexed annuity set second-quarter sales records “as investors seek solutions that offer greater upside growth potential while maintaining some level of downside protection,” said Giesling.
Still, there’s a wide disconnect between the percentage of investors who say they are interested in annuities and the share of advisors who say their clients are interested, according to a recent study by the nonprofit Alliance for Lifetime Income.
Understanding annuities
Many investors, particularly those nearing retirement, want the income streams that annuities can provide. But the products can be complicated and difficult to understand. Even among specific annuity products, there can be many variations in what they offer.
Fixed annuities guarantee an interest rate and a payout to the investor, Finra explains. The interest rate may change over time and may only be guaranteed for a period of years. With an immediate fixed annuity or a deferred annuity, the owner generally gets a predetermined fixed amount of money, usually on a monthly basis. These payouts are not affected by market fluctuations, so they can provide peace of mind to people who want a stable source of income during retirement, Finra says.
Variable annuities are more complex. They offer tax-deferred growth, but their value can go up and down depending on the performance of stocks, bonds or money funds that the investor chooses for investment options. Because of their complexity, they are a leading source of complaints to Finra, the agency says.
Fixed-indexed annuities usually offer a minimum guaranteed interest rate combined with an interest rate linked to an index, such as the S&P 500. They are more risky than fixed annuities, but less risky than variable ones, Finra says. One of the more popular indexed-annuity products today is registered index-linked annuities. They offer a buffer or floor that limits exposure to losses, but caps the opportunity for gains, Finra says.
A closer look
According to LIMRA, registered index-linked annuities climbed 6% year-over-year during the second quarter, to $11.4 billion, outkicking their full-year sales in 2017 ($9 billion) and 2018 ($11.2 billion).
Fixed-indexed annuity sales soared 34% during the first half of 2023, to $48.4 billion, and rose 28% in the second quarter alone.
Sales of single-premium immediate annuities surged 94% in the first half of 2023, to $6.8 billion, compared with the year-earlier period. Deferred income annuities saw sales increase 114% during the first six months of 2023, to $1.9 billion.
Traditional variable annuities have still been on the outs. Although their sales rose slightly in the second quarter compared with the first quarter, their year-over-year sales fell 19% in the second quarter and 25% during the first half, to $26.1 billion. Investors have shied away from variable annuities because of the instability of the stock market and attractive interest rates on less risky fixed annuity products.
In general, interest in annuities isn’t expected to let up anytime soon. “LIMRA is forecasting a strong second half of the year and expects 2023 sales to potentially surpass the record sales set in 2022,” said Giesing.
The second quarter results are still estimates, representing 87% of the total market, noted LIMRA.
