Fixed annuity sales smash previous record

Annual sales of fixed annuities broke a record in 2018, as investors retreated from a volatile stock market and were lured by the larger payouts created by rising interest rates.

Fixed annuity sales hit $132 billion last year, a 25% jump from the previous year, according to the Limra Secure Retirement Institute. The 2018 total bested the previous record, set in 2016, by roughly $15 billion.

Meanwhile, variable annuity sales saw their first year of growth in six years. VA sales of $100.1 billion were up 2% for the year, aided by rising interest rates, the stock market’s strength up until the fourth quarter, and relaxed regulatory pressures.

Market volatility toward year-end, beginning in October, helped drive fixed annuity sales to their highest-ever quarterly sales total in Q4, which in turn contributed to fixed annuities’ record year.

December was particularly volatile, with the S&P 500 up or down more than 1% nine times, compared with eight times in all of 2017. The S&P 500 ended 2018 down 6.2%, the first annual loss for the index since the financial crisis.

A turbulent stock market encourages investors to seek less risky havens for their money, such as fixed annuities, said Todd Giesing, director of annuity research at Limra.

“Volatility spiked pretty significantly during the [fourth] quarter and equity markets took a big downturn,” Mr. Giesing said.

Interest rates also increased throughout the year, leading insurers to offer investors more attractive crediting rates, he added. The 10-year Treasury, which yielded roughly 2.6% in January 2018, hit 3.15% in October before falling back a bit at year-end.

Sales of fixed annuities were driven higher primarily by two types of fixed annuities: indexed and fixed-rate-deferred annuities.

Indexed annuities shattered their previous annual record, set in 2016, by $9 billion to hit $69.6 billion for the year. Sales of fixed-rate deferred annuities increased $10 billion over 2017 to total $44.2 billion, a volume not seen since the financial crisis, Mr. Giesing said.

Another factor helping drive variable and indexed annuity sales higher was the disappearance of the Department of Labor fiduciary rule, which made it more difficult to sell these products in retirement accounts. The Obama-era rule was taken off the books in June following a court ruling striking down the regulation.

Overall annuity sales of $232.1 billion last year increased 14% over 2017.