Indexed Annuity Sales Continue to Soar

Sales of indexed individual annuities continued to climb in the fourth quarter of 2021, according to new survey data from the Secure Retirement Institute.

Insurers increased sales of non-variable indexed annuities 18% between the fourth quarter of 2020 and the latest quarter, to $17 billion.

Production of registered index-linked annuity contracts, which are also known as RILA contracts, or as index-linked variable annuities, rocketed up 26%, to $11 billion.

Overall annuity sales increased 8%, to $59 billion.

When life insurers write traditional fixed annuities, they offer a fixed crediting rate and promise to protect the holder’s account value. The insurers get the cash needed to pay the interest from the assets in their own “general account” portfolios.

Non-variable indexed annuities offer a guaranteed minimum crediting rate, along with a chance to earn higher returns when designated investment indexes do well. The issuers promise to protect the holders’ account value. The issuers can reduce their investment management costs by using index options to power the contract investments and hedge against volatility.

When insurers write RILA contracts, they may use the same kinds of indexes built into non-variable indexed annuities. But because the products are registered as variable insurance products with the SEC, the issuers can limit how much, if any, protection the products provide against loss of account value.

What It Means

For retirement planning specialists, one takeaway is that many retirement savers who may be using index-based investment options in their 401(k) plans or other defined contribution plans may also have exposure to investment indexes in their annuities.

Planners may want to think about the retirement savers’ level of investment index diversification as well as other types of diversification.

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