Fixed Annuities Remain Biggest Seller Amid Push for Guaranteed Income
As a whole, the annuities industry sold $191.4 billion across segments during the period, marking a 19.1% increase from 2020, according to LIMRA data.
- Terrence Dopp
- February 2022
Fixed annuities topped sales across all industry categories for the first three quarters of 2021 with $98.1 billion for the period, an increase of 10% from the prior year, industry tracker LIMRA said.
That figure was enough to put it ahead of the $93.3 billion in all variable annuities categories for the first nine months of 2021. The annuities industry as a whole sold $191.4 billion across segments during the period, marking a 19.1% increase from 2020, according to the LIMRA data.
American International Group topped LIMRA's ranking of companies selling the most fixed annuities through the first nine months of 2021 and was second highest across total annuities sales. The company reported sales of $8.03 billion worth of fixed annuities over the period and total sales of $14.1 billion.
“We're pretty excited about that,” said Bryan Pinsky, president, individual retirement at AIG, of the LIMRA data. “There are a lot of things driving that, but first and foremost is a continued recognition by financial professionals of the value annuities can play as the foundation of an individual client's retirement portfolio.”
Pinsky said in some cases advisers are using annuities as a means of supplementing, or even replacing a portion of, traditional fixed-income investments due to the pressures of low interest rates. “Many of them have started to turn to indexed annuities as a fixed-income alternative because those offerings tend to provide protection as well as a little bit more yield upside opportunity,” Pinsky said. “They have a little bit more yield opportunity than investing in a traditional fixed annuity, a CD or typical bonds today.”
AM Best on Dec. 7 moved its outlook on the U.S. life and annuities industry to stable from negative. In a Best's Market Segment Report: Market Segment Outlook: US Life/Annuity announcing the decision, analysts cited record levels of capitalization, strong liquidity and limited credit losses due to robust sales and other factors. The outlook had been deemed negative since the beginning of the COVID-19 pandemic amid industry uncertainty.
Year-to-date traditional variable annuities sales rose 17% to $65 billion, LIMRA found. Sales of fee-based variable annuities were $3.6 billion for the nine-month period, up 60%, and the third quarter of 2021 marked the first time LIMRA found four consecutive quarters of billion dollar-plus sales for the category. Sales of registered index-linked annuities, among the newest and hottest offerings to hit the market, were $28.4 billion in the first three quarters of the year, 81% higher than the previous year. The category allows purchasers to capture some of the upside of the equities market while buffering the downside potential.
Sales of fixed indexed annuities were $47.1 billion in the first nine months, a 14% gain from the previous year, and fixed-rate deferred annuity sales fell by 27% in the third quarter from a year earlier but totaled $42.1 billion, or 10% higher, for the first nine months of 2021.
Income annuities—both immediate and deferred—faced a tough period in the first nine months of 2021 as interest rates hovered near historical lows. Immediate income annuity sales fell 6% to $4.4 billion and deferred income annuity sales were $1.4 billion, 16% higher than in the same period of 2020. Annuities are the only product that offers guaranteed lifetime income to guard against longevity risk, Pinsky said. Advisers are telling their clients to examine other sources of guaranteed income such as Social Security and pensions to determine if there is a potential income gap.
“If so, they oftentimes will turn to an annuity product to cover that income gap,” he said. “Obviously, life spans are getting longer and most clients are going to live decades into retirement. There's just a need for people to have that level of certainty and comfort.”