Life Insurers Kept Selling More Fixed Annuities in Q2
The products help clients insure their income and increase issuers' exposure to guarantee risk.
Life insurers are continuing to sell more annuity products with fixed benefit guarantees — in spite of their efforts to limit their exposure to annuity guarantee risk.
Total sales of U.S. individual annuities increased 12% between the second quarter of 2022 and the second quarter of this year, to $88.6 billion, according to new LIMRA data.
Sales of annuities with fixed guarantees, including non-variable indexed annuities, climbed 29%, to $31.7 billion.
Provisions in the Setting Every Community Up for Retirement Enhancement 2.0 Act, or Secure 2.0, that promote use of income annuities may have combined with higher interest rates to boost sales both of immediate income annuities and deferred income annuities. Sales of traditional variable annuities, which offer returns tied to the performance of investment funds, fell.
Todd Giesing, an assistant vice president with the LIMRA Annuity Research unit, predicted that individual annuity sales will continue to be strong for the rest of the year. “Economic conditions continue to be favorable,” he said.
What It Means
Clients are continuing to seek products that can provide an insured stream of income.
Many life insurers have talked about limiting their own exposure to changes in interest rates and stock prices.
The companies that issue the annuities, or “direct writers,” are reconciling their sales goals and their risk-management goals by sharing responsibility for annuity guarantee risk with outside investors, through reinsurance arrangements.
If the reinsurance arrangements do well, the investors who put money into the arrangements will earn significant profits.
If the arrangements fail, the direct writers will have to recapture the annuity guarantee risk transferred to the reinsurers, under the terms of life reinsurance treaty recapture provisions, and make good on the contract obligations.
The Survey Numbers
LIMRA is a Windsor, Connecticut-based organization that helps financial services companies conduct market research and other types of research. It bases its quarterly annuity sales reports on the results from issuer surveys.
Here’s how sales of six types of annuities changed between the second quarter of 2022 and the latest quarter:
- Fixed-rate deferred annuities: $31.7 billion (up from $28.7 billion)
- Non-variable indexed annuities: $25.4 billion (up from $19.7 billion)
- Traditional variable annuities: $13.6 billion (down from $16.5 billion)
- Registered index-linked annuities: $11.6 billion (up from $10.8 billion)
- Fixed immediate annuities: $3.4 billion (up from $2.0 billion)
- Deferred income annuities: $1.08 billion (up from $520 million)
Credit: Andrey Popov/Adobe Stock