December 3, 2023

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Over the past year and a half, annuities have continued to break records. Now, after the best sales year in the product’s history, they’ve broken another: their highest-ever quarterly sales.

Total Annuity Sales Reported to Reach $92.9 Billion in First Quarter of 2023 Linla, an industry-funded researcher, has been tracking these products since the 1980s. The total represents a 47% increase over the first quarter of 2022.

“The momentum on the train from 2022 continues,” said Todd Giesing, director of annuities research at LIMRA. “When we look at the strong performance in the first quarter, that will certainly drive the rest of the year.”

Annuities – complex insurance products that provide pension-like income in retirement – were on the market by the end of last year. These products tend to sell better during times of economic uncertainty, and 2022 will be marked by runaway inflation and stock market volatility. Total annuity sales reached $310.6 billion by the end of the year, breaking the annual record set during the 2008 financial crisis.

As 2023 begins, the economy shows some signs of improvement.Inflation, which climbed to 9.1 percent in June last year, was as low as 5% March.Stocks — no matter how volatile — rebound, S&P 500 up 7.5% the first three months of this year. But investors remain concerned, with many flocking to relatively stable annuities.

“People are still worried about the economy and they’re looking for protection,” Gissing said.

This desire for safety is clearly a factor in the highest sales of the product. Fixed-rate annuities are especially popular, as they offer a minimum rate of return no matter what the stock market does. Specifically, fixed-rate deferred annuities attracted $40.9 billion in revenue last quarter, up 157% from the first quarter of 2022 and a new record for the category. Fixed indexed annuities also reached new peaks, with sales of $23.1 billion.

The situation is different with a variable annuity, which is linked to an investment portfolio—often including stocks. Sales of traditional variable annuities fell to $12.9 billion, down 30 percent from a year earlier.

“Fixed annuities are booming, while sales of variable annuities continue to decline,” said founder David Lau. DPL Financial Partner, which consults financial advisors about fee-based insurance products. “That’s unusual. The industry was dominated by variable annuities for a long time until the last year or so.”

Other categories enjoyed their best quarter so far. Income annuity sales that begin paying immediately upon purchase reached an unprecedented $4.1 billion. Within this group, lump-sum premium immediate annuity revenue was $3.3 billion, up 120% from last year’s first quarter. Deferred income annuity sales hit $820 million, a 125% increase over 2022.

In the middle is a registered index-linked annuity (RILA). These relatively new products, which hit the market in the 2010s, are linked to index funds but set limits on losses from stock downturns. RILA’s first-quarter 2023 sales totaled $10.4 billion, up 8% from 2022 — a solid result, but not a new record for the category.

In a way, this middling performance fits with a general pattern for annuities last quarter: The safer the stock market, the better the sales.

“What you’re seeing across the board is the use of protection,” Liu said. “Nobody wants to go into variable annuities. … People are looking for more of the security and stability of fixed products.”

Over the past few years, some wealth managers have said their clients have shown more interest in these products as the economy has weathered multiple crises.

“We’ve seen a significant increase in customers asking about and purchasing annuities,” said Kris Etter, author of Beacon Financial Planner in Houston, Texas. “I think the COVID downturn in February 2020 saw a wave of people realize they didn’t have the appetite to ride the roller coaster with retirement so close or imminent. Another wave comes in 2022 as interest rates rise to fight inflation shattering the inability to An entire portfolio that withstands market volatility.”

So, if the economy improves, will annuity sales suffer? Gissing doesn’t think so. If inflation continues to cool and the stock market continues to improve, clients may switch from fixed annuities to variable annuities, he said. But in the long run, he expects sales to continue to boom.

“I think the momentum from 2022 will help drive the industry forward over the next five years, and 2023 is very strong and may challenge what we had last year – but it will be close,” Giesing said.