The COVID-19 pandemic initially negatively impacted annuity sales in a big way. But the initial shock seems to have worn off. The market for annuities began to rebound starting in the fourth quarter of 2020, with sales rising 2%. In the first quarter of 2021, sales rose 9%.
Then, boom. Annuity sales seemed to explode. In the second quarter of 2021, total annuity sales were up big to $62.8 billion, 33% higher than prior year, according to the Preliminary U.S. Individual Annuity Sales Survey conducted by the Secure Retirement Institute. Year-to-date, annuity sales totaled $129 billion, 23% higher than the same time period from 2020, according to preliminary results from the same survey.
Overall annuity performance: According to thinkadvisor.com, sales of five types of annuities changed between the second quarter of 2020 and the latest quarter.
· Traditional Variable Annuities: $23 billion (up from $17 billion)
· Fixed-Rate Deferred Annuities: $16 billion (up from $13 billion)
· Non-Variable Indexed Annuities: $15 billion (up from $12 billion)
· RILA Contracts: $10 billion (up from $4.5 billion)
· Fixed Immediate: $1.8 billion (up from $1.4 billion)
Market forces at play: The spike in U.S. individual annuity sales was driven by some economic normalization following the initial disruption due to COVID paired with rising interest rates.
As the economy continues to recover, that momentum is expected to continue. “Strong equity market gains and lower volatility, as well as rising interest rates all contributed to the remarkable rebound in the annuity market,” according to Todd Giesing, assistant vice president at SRI Annuity Research. “There is significant pent up consumer demand for products providing tax-deferred investment growth and guaranteed income. The last time quarterly annuity sales surpassed this level was fourth quarter 2008, during the Great Recession.”
The plot twist: Even fixed-rate annuities (FIA) performed well and are expected to become preferred to registered index-linked annuities (RILA), especially if interest rates continue to rise. In part, this is because fixed-rate annuities offer greater protection of principal. Still, the FIA market has not returned to the levels seen in 2019.