Annuity sales spike as investors sought protection in Q4

Annuity sales saw a bump during the fourth quarter of 2020 as investors sought refuge from a volatile market and uncertain world.

Total U.S. annuity sales hit $58.7 billion in the last three months of the year, up 2% from the $57.6 billion during the same period in 2019, according to data published today by Limra’s Secure Retirement Institute. But sales were down for the full year, at $219.1 billion, versus $241.7 billion in 2019.

Chronically low interest rates and a year that was anything but predictable helped draw consumers to products with asset-protection features and the potential for appreciation, the data show. While figures were down for the products overall, sales in some categories picked up considerably — registered index-linked annuities, or buffered annuities, and traditional fixed deferred annuities flew off the shelves.

“Overall, sales are back to what I would say are pre-pandemic levels,” said Todd Giesing, senior annuity research director at the Secure Retirement Institute. “Protection was the key theme of 2020, with the market volatility and all the uncertainty.”

NEW PRODUCTS

Registered index-linked annuities are a type of variable annuity that provides limited upside potential and some protection against investment losses. Watching sales in that category increase consistently over the past several years, insurers have been adding more of those products to the market.

But with the new abundance of those annuities, insurers will seek to make any new ones stand out from the competition, as distributors don’t want to sell 10 variations of what is basically the same product, Giesing said. Last year, there were a dozen companies with registered index-linked annuities, he noted, three of which were new entrants to the category — Nationwide, Prudential and RiverSource.

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“We’ll continue to see another wave of carriers entering this space in 2021,” he said. “We’ll start to see some changes, not only to crediting strategies, but also to the indexes that are used in this space.”

For example, managed volatility funds have not been a big part of registered index-linked annuities to date, despite those investments being common in the wider VA category, he noted.

Across product categories, carriers have been adding new annuities in recent months. Last Friday, Nationwide announced a new fixed indexed annuity, Peak 10, to be distributed through AmeriLife. That was followed by news last Tuesday that Pacific Life launched a VA with two living benefits options, which it calls Pacific Choice Income.

On Jan. 15, Charles Schwab unveiled two VAs in partnership with Protective Life Insurance Company, dubbed the Schwab Genesis VA and Genesis Advisory VA, the latter of which is sold through RIAs that custody with Schwab Advisor Services.

Two weeks ago, The Standard announced a new multi-year guarantee annuity with several withdrawal options.

Further, New York Life recently added a VA, IndexFlex, which includes variable and index-linked investment options.

A SURPRISE

Despite incredibly low interest rates, sales of fixed deferred annuities were strong in 2020, up by 41% in the fourth quarter compared with the fourth quarter of 2019. For the full year, sales of those products hit $51.7 billion, compared with $47.5 billion in 2019, according to the Secure Retirement Institute data.

That trend could be due to a lack of good alternatives, as well as a strong demand for asset protection in general, Giesing said. For example, bank- and market-linked certificates of deposit have rates that are less than half of those available in fixed deferred annuities, he said.

Meanwhile, sales of fixed indexed annuities fell substantially, at $55.7 billion for the year, down from $73.5 billion in 2019.

Although interest rates were up slightly in the fourth quarter, the 10-year Treasury rate was 93 basis points at the end of 2020, less than half of what it was at the beginning of the year, according to the report. That environment makes it difficult for insurers to provide competitive guaranteed living benefits alongside their VAs.

Last year, two major insurers, Prudential and Transamerica, indicated plans to stop selling such guarantees. Transamerica is also ceasing fixed annuity sales.

Assuming the world begins to return to normal this year, overall annuity sales should improve, Giesing said.

“We don’t expect any shocks from an economic standpoint,” he said. “But we are expecting modest improvement overall for the industry in 2021.”