Annuity sales reached new heights in 2023, marking a second consecutive year of significant growth, according to industry trade group Limra. This surge was largely attributed to the increasing interest in fixed annuity products.
Fixed annuity sales experienced a remarkable increase of 36% last year, totaling $286.2 billion. Bryan Hodgens, head of Limra research, described this growth as outstanding and credited it to favorable economic conditions and the growing demand for protected investment growth.
Prior to 2022, total annuity sales had never reached this level. Despite a more than 20% climb in equity markets during 2023, investors remained concerned about a potential downturn. Coupled with advantageous interest rates, this sentiment prompted many investors to secure the crediting and payout rates offered by fixed annuity products.
Overall, annuity sales reached $385 billion in 2023, showing a substantial increase of 23% compared to the previous year.
The final quarter of the year was particularly strong, with fourth-quarter sales totaling $115.3 billion, a remarkable 29% increase from the same period in 2022, as reported by Limra.
The exceptional performance of the annuity sector may have implications for the ongoing policy debate surrounding a controversial proposal by the Department of Labor. The proposal aims to expand fiduciary responsibilities for financial professionals who assist clients in retirement planning, including those involved in annuity sales.
When the proposal was announced in October of last year, President Biden specifically criticized the annuity sector. While acknowledging that most advisors act in the best interests of their clients, he deemed the sale of costly annuities by unscrupulous individuals as "junk fees."
However, business groups representing the annuity industry reject this characterization. They argue that insurance products play a crucial role in retirement planning for many savers. Limra's report seems to support this viewpoint, as it highlights the significant growth in annuity sales driven in part by the prevailing interest-rate environment.
Fixed-Indexed Annuity (FIA) Sales Soar to Record High in 2023
Fixed-indexed annuity (FIA) sales experienced a significant boost in 2023, reaching an all-time high of $95.6 billion. This represents a 20% increase from the previous year and is an impressive achievement for the product. The surge in sales can largely be attributed to the rising interest rates observed during this period.
FIA Product Appeal: Stability and Competitive Crediting Rates
Insurers managed to offer highly competitive crediting rates, enabling them to safeguard the principal investment from the volatility of equity markets. This combination of stability and potential for growth made FIA products immensely attractive to investors throughout 2023. Market experts predict that FIA sales will remain robust in the coming years, with a projected figure of almost $100 billion by 2025.
Impressive Growth Among Income Products
The positive growth trend was not limited to FIAs alone; income products also experienced remarkable progress. Single premium immediate annuity sales surged by 43% to reach $13.2 billion, thanks to the Federal Reserve's rate hikes. Deferred income annuity sales also saw a staggering increase of 96%, amounting to $4.1 billion for the year.
Registered Index-Linked Annuities: A Steady Rise
Registered index-linked annuities (RILAs) had a solid year as well, with sales climbing by 15% to reach $47.4 billion in 2023. This growth indicates a growing interest among investors in products that combine market participation with downside risk protection.
Shifting Investor Preferences: Traditional Variable Annuities Experience Decline
As the popularity of RILAs and FIAs continues to grow, traditional variable annuities (VAs) faced a decline in sales. In fact, VA sales plummeted by 17% to a record low of $51.4 billion in 2023. This downturn can be attributed to the emergence of RILAs and the expansion of FIAs, which provide investors with the opportunity to enjoy investment growth potential while minimizing downside risk.
Future Predictions: Anticipated Growth in Traditional VA Sales
Despite the decline observed in 2023, experts at Limra project that traditional VA sales will experience a resurgence in the coming years. The predicted growth is estimated to be as high as 10% in 2024, driven by the anticipated growth of the equity market.
In conclusion, the year 2023 proved to be a remarkable one for the annuity industry. The strong performance of FIAs, income products, and RILAs indicates a shifting preference among investors to products that offer both stability and growth potential. While traditional VAs faced challenges, they are expected to regain momentum in the near future. As the market continues to evolve, it will be interesting to see how investor preferences and product offerings develop.
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