Rocky Equity Markets, Moving Rates Help Annuities Shine

As the equity markets continue their substantial swings and interest rates steadily rise after years of record lows, new survey data shows more investors than ever are considering guaranteed income products.

Specifically, annuity sales increased 22% to $77.5 billion in the second quarter of 2022, according to preliminary results from LIMRA’s U.S. Individual Annuity Sales Survey. This is the highest quarterly sales ever recorded since LIMRA began tracking annuity sales, and nearly $9 billion above the previous record, which was set in the fourth quarter of 2008 during the Great Recession.

“Continued equity market declines and rising interest rates drove investors to purchase record-level fixed-rate deferred annuities in the second quarter,” Todd Giesing, assistant vice president, LIMRA annuity research, stated in a release. “Our research shows fixed-rate deferred annuity manufacturers are, on average, offering interest rates more than four times that of a bank CD, which has made these products a tremendous value for investors looking for protection and growth potential.”

The data show that overall fixed-rate deferred annuity sales were $28.2 billion in the second quarter, 76% higher than 2021 Q2 sales. According to LIMRA, this is the highest sales quarter for fixed-rate deferred annuities ever recorded. In the first six months of 2022, fixed-rate deferred annuity sales totaled $44.1 billion, a 44% increase from the same period in 2021.

Fixed indexed annuity sales also had a strong showing in Q2 as sales were $19.7 billion in the period, up 19% from the prior year. Year-to-date sales were $36 billion, a 20% increase from last year, LIMRA found.

“Both FIAs and fixed-rate deferred products benefited from the significant interest rate increases in the second quarter,” Giesing said in the release. “Coupled with a nearly 20% equity market decline, investors sought out principal protection and growth potential, which these products offer.”

Volatile market conditions affected traditional variable annuity sales, data show.

For example, in Q2 sales fell 32% to $15.4 billion, the lowest quarterly results since the fourth quarter of 1995. Year-to-date, sales totaled $33.9 billion, down 22% from the same period in 2021, according to LIMRA.

“Rising interest rates helped the income annuity market but expectations of further rate increases by the Federal Reserve have likely damped the growth,” which effected the variable annuity market, the release states.

In addition, single premium immediate annuity sales were $2 billion in the second quarter, 25% higher than the prior year, according to LIMRA. Year-to-date, single premium immediate annuity sales were $3.5 billion, a 13% increase from 2021. In Q2, deferred income annuity sales fell 13% year-over-year to $443 million and year-to-date deferred income annuity sales were $808 million, also down 13%.

The preliminary Q2 2022 annuity industry estimates are based on monthly reporting that represents 85% of the total market, according to LIMRA.

Publication of these record sales figures comes at a time when the retirement industry is firmly focused on the “decumulation challenge,” that is, solving the transition from accumulation to spending for America’s growing retiree population. Both service provider partners and plan participant clients are tuned into the issue, as another recent survey shows more than eight in 10 employees would be interested in a deferred annuity benefit, with some 50% saying they would contribute monthly and 30% saying they would consider contributing.