Don't Let Record Sales Fool You: The Annuity Industry Is Stuck
What You Need to Know
Sales of fixed annuities soared.
Sales of traditional variable annuities fell.
What if the interest rate wind turns in variable products’ favor, but complexity holds sales down?
Annuity sales reached an all-time high last year.
But scratch below the service, and you’ll see the industry’s core remains stagnant.
Given last year’s rising interest rate environment and market volatility, it’s not surprising that many investors turned to certain types of annuities.
Annuities boomed in 2022, with sales hitting $310.6 billion, a 17% increase from the previous record set in 2008 according to LIMRA data. That’s a pace LIMRA predicts will continue.
But underneath these numbers is a different story entirely — a story about an industry being held back by antiquated processes and systems.
Sure, Record Sales
First let’s take a closer look at the record set in 2022.
Multi-year guarantee annuities — a type of fixed rate annuities — blasted off, seeing $27.4 billion in sales in the third quarter alone of last year, according to Wink.
This was a 4.7% increase over the previous quarter and a staggering 138% increase over the third quarter of 2021.
To put that in perspective, the third-quarter MYGA sales numbers for the third quarter of 2022 approximated the average annual sales for years before 2022.
Fixed and fixed indexed annuities, or FIAs, also had a record-breaking third quarter last year, with $21 billion in sales, up 6.9% over the previous quarter and 20.9% from the third quarter of 2021.
Look Deeper
At the same time, sales of traditional variable annuities fell 41% compared to sales for the fourth quarter of 2021.
Last year, traditional variable annuity sales totaled $61.8 billion, down 29% from 2021.
In other words, after excluding sales of interest-rate sensitive MYGAs, the industry’s core struggled.
The explosive growth seen in MYGAs and FIAs over the past year should not be surprising.
They’re interest-rate sensitive, and the rising-rate environment and market volatility seen over the past year has created a perfect storm for investors to flock to the relative safety of these products.
However, what goes up must come down, and we’ll eventually see a reversal in rates.
When that happens, we can expect to see sales of these products cool and then the numbers will tell a different story — unless sales of traditional VAs and riders re-emerge.
This is where things get tricky.
If you compare MYGAs and fixed annuities to traditional variable annuities with living benefits, they’re relatively straight forward products with fewer moving parts.
Advisors taking advantage of the rate environment could be new to annuities, or revisiting them after an absence, and may not make the move to more traditional solutions once rates recede.
And, even if they do, they’re in for quite a surprise when it comes to the complexity of not only the products, but the process itself to research, recommend, transact, and manage them.
