Demand for some annuities rising in COVID-19 market

The COVID-19 crisis is funneling sales to buffered annuities, according to projections from Limra’s Secure Retirement Institute.

Those products, which have been around for years but recently rebranded as registered index linked annuities, have limits on the losses that contract holders can sustain. In a volatile market, that can make them more appealing than other types of annuities, said Todd Giesing, senior annuity research director at the Secure Retirement Institute.

Those products are projected to see their sales increase by 10% this year, compared with those they saw in 2019, according to an estimate the organization published Thursday. Meanwhile, most other types of annuities will likely continue to see their sales fall this year, although fixed-rate deferred annuities could remain flat, the report noted.

In a nod to demand for buffered annuities, insurance companies have been rolling out new products or modifying existing ones. On Monday, Prudential Financial added its first such product, FlexGuard, which touts multiple levels of loss protection available to contract holders. The firm launched the commission-based version of that product, though it said in an announcement that a fee-based version will come later this year.

Another firm, Lincoln Financial, this week added a one-year 10% loss-protection option that tracks the S&P 500, for its Level Advantage product, which it brought to market two years ago. The firm also recently added a 20% loss option, it noted in its announcement.

During the first quarter of 2020, buffered annuities saw $4.9 billion in sales, a 38% increase from the first quarter of 2019, according to the Secure Retirement Institute.

That helped drive up overall variable annuity sales, which were about $25.6 billion for the quarter, an 18.9% bump from the level seen a year earlier, according to a separate report also published Thursday by annuity research firm Wink. Buffered annuities represented 19% of all VA sales in the first quarter, according to that report.

Across all types of deferred annuities, sales were $52.7 billion during the first quarter, down 1.1% from the first quarter of 2019, according to Wink.

The top annuity carriers by sales during the quarter were Jackson National Life, Lincoln National Life, AIG, Equitable Financial and Allianz Life, Wink stated.

“The [registered index linked annuity] product design is well-suited for the environment we’re in,” Giesing said. “You have people entering or nearing retirement, and all of a sudden, we have a global pandemic that sends the equity markets haywire.”

The products can provide downside protection for three to six years, after which people “hope and assume that the events of the pandemic will be past,” he noted.

Along with limiting losses, the products also put caps on the returns contract holders can receive, but they nonetheless give chances for people to see higher returns than they might get in fixed-rate annuities. About 85% of sales of those annuities happen through banks and independent broker-dealers, Giesing said.

“They’ve sustained their pricing better than other product types,” he said. “There is still a strong amount of value in these products.”

The projections are based on economic assumptions from third parties, as well as market changes seen during the crisis, he said. Though the election could affect demand, it is too soon to see what could happen, he noted.

Low interest rates will not bode as well for fixed indexed annuities, which will likely see a 20% decline in sales, according to the report. Fixed indexed annuities had $16.2 billion in sales during the first quarter, down 10% from the level seen a year prior.

Sales of fixed-rate deferred annuities were $9.8 billion during the first quarter, down by 35% compared with the first quarter of 2019, according to the report. However, sales for the rest of the year could improve, given potential demand for principal protection, the Secure Retirement Institute noted.

Sales trends will be similar to those seen following the 2008 financial crisis, although regulatory reforms mean that the insurance industry is now better suited to quickly adapt products in response to market conditions, Giesing said.

“We’re in for a challenging few quarters … We expect to see the true impact around the events of COVID-19 as we move into the second quarter,” he said.