Annuity sales back on track by 2022: Report

This year isn't shaping up well for sales of most annuities, but volume will likely tick up over the next two years to return to the record levels seen in 2019, according to projections this week from Limra’s Secure Retirement Institute.

Annual sales are on track to reach between $205 billion and $222 billion across all annuity products by the end of the year, down from nearly $242 billion in 2019, according to the report published Wednesday.

However, sales could gradually rise, hitting between $208 billion and $225 billion in 2021 and between $229 billion and $246 billion in 2022, the organization wrote.

Current economic conditions, including low interest rates, have made most products less appealing than they were prior to the COVID-19 crisis. Because of that, sales this year will come in 8% to 15% lower than in 2019, similar to the sales decline seen after the 2008 financial crisis, according to the Secure Retirement Institute.

“The good news is the outlook for 2021 and 2022 is brighter,” the organization stated. “As equity markets and interest rates slowly rise over the next two years and the number of people age 65 and over expands to comprise 18% of the U.S. population, SRI is forecasting the annuity market to rebound and make up the losses incurred in 2020.”

Behind those projections are shifts in the demand for various products, with overall sales of fixed annuities expected to fall through 2021 and sales of variable annuities seen ramping up over that period.

This year, the only product type that is expected to see sales grow is the buffered annuity, also known as a structured annuity or registered index-linked annuity. That type of variable annuity often provides for higher return potential than indexed annuities, though contract holders can also see limited potential losses in their principal amounts. By 2021, those products could represent about a quarter of all VA sales, at $23 billion to $25 billion, the group projects.

Fixed indexed annuity sales are projected to fall by 25% this year, though those figures will rise as market conditions improve in the coming years, according to the report.

The low level of interest rates is even more painful for income annuities, sales of which are on track to decline 40% or more this year from 2019's level, the report stated.

Another product type, fixed-rate deferred annuities, will likely see flat sales this year compared to 2019, but sales will probably fall considerably in 2021

“As equity markets stabilize but interest rates remain low in 2021, consumers are expected to seek products that will provide greater investment growth, causing fixed-rate deferred sales to drop by as much as a third,” the report said. “In 2022, fixed-rate deferred sales will grow slightly as economic conditions improve and short duration fixed-rate deferred contracts sold in 2018 and 2019 lose their surcharges.”

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