Favorable Economic Conditions Fuel Q3 Rise in Annuity Sales

Rebounding equity markets combined with rising interest rates fueled an 11% year-over-year increase in annuity sales during the third quarter, according to preliminary results from LIMRA’s U.S. Individual Annuity Sales Survey. [Source]

According to the preliminary data, total sales of U.S. annuities rose to $89.3 billion during the third quarter from $87.1 billion during Q2 and $80.7 billion during Q3 2022. For the first three quarters of 2023, total annuity sales increased 21% to $270.6 billion from $223.4 billion during the same period in 2022.

“Equity markets rebounding in 2023, combined with a strong increase in interest rates, has allowed insurance companies to add additional value in their annuity offerings to investors,” Todd Giesing, LIMRA’s assistant vice president and director of annuity research, said in a release. “LIMRA expects 2023 sales will surpass the record sales set in 2022.” [Source]

According to a MetLife poll released earlier in October, inflation was another main reason (cited by 49% of respondents) pension sponsors looked to initiate a pension risk transfer.

Market volatility, rising interest rates and an increase in the volume of retirees were in a three-way tie for second at 42%, while some 35% of plan sponsors said a fear of missing out on favorable annuity buyout pricing was their main reason for seeking a PRT. Recessionary concerns and actions by the Pension Benefit Guaranty Corporation were leading catalysts for 31% and 24%, respectively, of plan sponsors.

LIMRA’s data showed that sales of registered index-linked annuities rose to a quarterly record of $12.6 billion from $11.4 billion during Q2 and from $10.6 billion during Q3 2022. Over the first three quarters of 2023 combined, RILA sales increased to $34.4 billion from $31 billion during the first three quarters of last year. LIMRA is forecasting another record-breaking year in 2023, likely increasing at least 10%.

“Investors still seem focused on the value of protection and growth potential that RILAs offer,” Giesing said.

Deferred-income annuity sales declined to $950 million from $1.06 billion during the second quarter but surged 88% from $510 million in sales one year ago. During the first three quarters of 2023, sales of DIAs doubled to $2.8 billion from $1.4 billion during the first nine months of 2022.

Sales of fixed-indexed annuities declined to $23.3 billion in the third quarter from $25.3 billion the previous quarter, but up from $21.5 billion a year earlier. Over the first three quarters, FIA sales rose 25% to $71.7 billion from $57.5 billion during the same period last year. LIMRA attributed rising income annuity sales to continued rising interest rates.

Meanwhile, sales of single-premium immediate annuities sales were $3 billion in the third quarter, down 12% from the $3.4 billion in sales registered the previous quarter, but 20% higher than the same quarter last year. Over the first nine months of the year, the estimated $9.8 billion in total SPIA sales were a 63% increase from the same period in 2022.

“Income annuities will hit record levels in 2023, with sales in this category expected to exceed $16 billion for the year,” Giesing said.

Sales of fixed-rate deferred annuities were up 13% from the previous quarter and 15% year over year to $34.4 billion, and during the first three quarters, FRD annuity sales increased 43% from the same period last year to $106.4 billion.

Giesing said that although FRD annuity crediting rates still outperform CD rates, the gap has narrowed, and investors are moving to RILAs and FIAs.

“That said, with a significant amount in FRD contracts coming out of surrender this year, LIMRA expects a portion of those assets to be reinvested in FRD products, driving total FRD sales to another record year,” Giesing said.

Traditional variable annuities were the only annuities with lower sales during the first three quarters of the year, falling 20% to $39.2 billion from 2022. Traditional VA sales were down 2% from the second quarter and 7% from the third quarter of 2022. As a result, and despite improving economic conditions for traditional VA products, LIMRA forecasted sales growth to be down in 2023.