Higher Interest Rates Reshape the Annuity Market

What You Need to Know

Nonvariable indexed annuity sales rose 21%.
Sales of traditional variable annuities fell 11%.
RILA sales increased 5%.

Interest rate increases helped sales of two major types of nonvariable annuities in the first quarter, according to new life insurer survey data from the LIMRA.

Sales of nonvariable indexed annuities — which can protect holders against loss of account value — climbed 21% between the first quarter of 2021 and the latest quarter, to about $16.3 billion.

Sales of traditional fixed-rate deferred annuities rose 9%, to $15.9 billion.

Traditional variable annuities continued to lose share, with sales falling 11%, to $18.5 billion — but that class of products continued to be the most popular one on the market. Sales of registered index-linked annuities, or RILA contracts, increased 5% but still accounted for just $9.6 billion of total sales.

Overall sales increased 4%, year-over-year, to about $63 billion.

What It Means

For annuity advisors, the news here may be that the account value guarantees in nonvariable traditional indexed annuities and the wide range of investment fund options in traditional variable annuities still have client appeal on days when investment markets look complicated.

Details

Here’s how sales of five types of annuities changed between the first quarter of 2021 and the latest quarter:

Traditional variable annuities: $18.5 billion (down from $20.9 billion).
Nonvariable indexed annuities: $16.3 billion (up from $13.5 billion).
Fixed-rate deferred annuities: $15.9 billion (up from $14.6 billion).
Registered index-linked annuities: $9.6 billion (up from $9.2 billion).
Fixed immediate: $1.5 billion (unchanged).

Annuity Basics

An annuity is a product that can convert a stream of premium payments, or one big premium payment, into a stream of income payments.

Insurers call annuities set to begin paying benefits within 12 month after the date of purchase “immediate annuities” and contracts set to begin making payments at a later start date “deferred annuities.”

A “variable annuity” is an annuity registered with the SEC as a security. The issuer of a variable annuity may expose the holder to the risk of loss of account value.