The U.S. annuity industry enjoyed a strong year in 2013, with sales increasing 4.2% over 2012 to $220.9 billion, mostly as a result of growing demand for fixed annuities, according to a report by The Insured Retirement Institute.
Sales of fixed annuities in 2013 grew 16.6% to $78.1 billion. This surge was sufficiently robust to offset a decline in variable annuity sales, which dipped 1.5% to $142.8 billion.
This growth is a bit surprising, since the spread between the interest rates of bonds and annuities actually narrowed last year, said Jeremy Alexander, president of Beacon Research. Typically, this would be unfavorable for annuities.
One possibility is that demand for these products is being propped up by the growing number of people nearing retirement age. Additionally, annuities are becoming increasingly popular with younger investors, he said.
“Younger people have gone through a mess of a recession and this may have effected their risk profile,” Mr. Alexander said. “When you see a parent or loved one or friend have to work in retirement, it changes the way you think about life.”
The biggest drivers of 2013’s growth in sales were market-value-adjusted annuities, which saw a 41.4% increase to $6.7 billion.
Income annuities and indexed annuities were also popular. Income annuity sales grew 23.3% in the fourth quarter to $3.5 billion. Indexed annuity sales rose 17% to $11.8 billion.
“Income annuities were clearly benefiting from retirement income,” Mr. Alexander said. “We have seen tremendous growth percentage-wise and they continue to make up more and more of the market.”
Despite last year’s slowdown, the net assets in variable annuities still reached an all-time high of $1.87 trillion