Low Rates Still Pushing Annuity Buyers Toward Variable Products

 Commentary  January 28, 2022 at 07:44 AM  Share & Print

What You Need to Know

  • Sales of traditional fixed-rate annuities fell sharply, according to preliminary results of a Secure Retirement Institute issuer survey.

  • Sales of products with rates that change climbed more than 10%.

  • Individual annuity issuers have pulled back from selling fixed-rate annuities and benefit guarantee riders in recent years, citing low interest rates.

The Federal Reserve Board appears to be ready to start raising the interest rate benchmarks it controls, but low rates continued to reshape the U.S. individual annuity market in the fourth quarter of 2021.

Sales of traditional fixed-rate annuities fell sharply, according to preliminary results of a Secure Retirement Institute issuer survey.

Sales of products with rates that change — traditional variable annuities, non-variable indexed annuities and, especially, registered index-linked annuities, or RILAs — climbed more than 10%.

Overall sales increased to $63 billion, up 8% from the total recorded for the fourth quarter of 2020.

Sales for all of 2021 increased 16%, to $255 billion.

Life insurers have benefited from easy year-over-year sales comparisons through most of 2021 because social distancing efforts related to the COVID-19 pandemic hurt 2020 sales.

But in the latest quarter, life insurers also beat the 2019 numbers: Insurers reported $58 billion in individual annuity sales in the fourth quarter of 2019, and $242 billion in annuity sales for all of 2019.

Why It Matters

Many individual annuity issuers have been pulling back from sales of fixed-rate annuities and benefit guarantee riders in recent years because of low interest rates.

Some are emphasizing sales of RILAs. RILAs give issuers mechanisms they can use to control just how much, if any, of the annuity contract value they guarantee. Use of crediting rate options linked to investment indexes make the products relatively cheap and easy for the issuers to hedge.

If interest rates start to rise, a swing back toward more sales of fixed and non-variable indexed annuities, and a wave of announcements about additions of benefits guarantee riders to RILA contracts, would be a sign that low interest rate winter had ended and spring was in the annuity market air.

Q4 2021 Annuity Sales Details

Here’s how sales of six types of annuities changed between the fourth quarter of 2020 and the latest quarter:

  • Traditional variable annuities: $22 billion (up 13%).

  • Non-variable indexed annuities: $17 billion (up 18%).

  • Fixed-rate deferred annuities: $11 billion (down 18%).

  • RILA contracts: $11 billion (up 26%).

  • Fixed immediate: $1.6 billion (unchanged).

  • Structured settlements: $1.1 billion (unchanged).

European Compliance Association

European Compliance Association

-