U.S. Annuity Sales Could Reach All-Time High: Cerulli

Annuity sales have been on a tear this year, largely because of the Federal Reserve interest rate hikes, which have allowed insurers to raise crediting rates on their fixed and indexed annuities, according to a new report from Cerulli Associates.

The rate environment, coupled with difficult market and economic conditions, has led many advisors and their clients to flock to annuities for safety, the report said.

As a result, fixed annuity sales could reach an all-time high just short of $70 billion by the end of 2022.

If the Fed continues to raise interest rates, Cerulli expects sales of fixed-rate deferred annuities to increase their hot streak. A declining stock market would only add to that momentum, driving advisors to further embrace the safety of fixed annuities.

“Insurers may be able to leverage the current market conditions to continue reminding advisors of the cost-benefit of many annuities and specific features, including principal protection, income-taking solutions, long-term care hybrids, in-plan annuities and inflation-protection features,” Donnie Ethier, senior director of Cerulli’s wealth management practice, said in a statement. “However, it will take time to do so.”

Although annuities may flourish in the near term, Cerulli cautions insurers to avoid a rate war that could negatively affect individual issuers and potentially cast the industry in a bad light.

“Carriers will need to manage client expectations as far as the kind of returns they will ultimately achieve,” Ethier said.

This year’s conditions have boosted overall annuity sales, but the trends that have been in motion for more than a decade will likely return when markets stabilize, according to Ethier.

“This means, despite renewed interest in the solutions and increasing sales, the challenges that insurers were facing prior to 2022 will persist,” he said.