In a year marked by robust economic conditions and an increased appetite for investment security, the US annuity market achieved unprecedented success in 2023.
According to Limra's US Individual Annuity Sales Survey, which accounts for 83 percent of the national market, annuity sales surged to a record $385 billion in 2023.
The survey, which confirmed its 2023 annual sales outlook released in December, represents a 23 percent uptick from 2022 and marks a second consecutive year of record-breaking performance.
The significant growth in annuity sales was primarily led by the fixed annuity segment, which experienced a 36 percent increase to reach $286.2 billion, surpassing the previous year's milestone.
Bryan Hodgens, head of research at Limra, attributed this success to favorable economic conditions and keen consumer interest in investment options that offer protection against market uncertainty.
"Despite equity markets climbing more than 20% in 2023, investors worried about a downturn," Hodgens said in a statement. “This sentiment, combined with strong interest rates, prompted investors to lock in crediting and payout rates offered in fixed annuity products.”
The final quarter of 2023 alone set a new quarterly record, with annuity sales reaching $115.3 billion, marking a 29 percent increase from the fourth quarter of 2022 and outpacing the record established in the first quarter of 2023 by 23 percent.
Within the fixed-rate deferred annuity space, sales hit $58.5 billion in the fourth quarter – 52 percent higher than the previous year, and the highest ever recorded. The category capped off the year at $164.9 billion, up 46 percent up from the annual high of $113 billion in 2022.
Fixed indexed annuities also experienced a banner year with sales amounting to $95.6 billion, a 20 percent rise from the year before. The ability of insurers to offer competitive crediting rates while protecting the principal investment from equity market swings made these products increasingly attractive, Hodgens said.
“With interest rates expected to pull back in 2024, LIMRA is predicting a slight decline for FIA sales in 2024, but product sales will remain historically strong and are forecasted to reach nearly $100 billion in 2025,” he said.
Income annuity products also saw a significant sales uptick due to rising interest rates, with single premium immediate annuity sales soaring 43 percent for the year to $13.2 billion, and deferred income annuity sales nearly doubling to $4.1 billion.
Meanwhile, registered index-linked annuities outsold traditional variable annuity sales for the first time, achieving $47.4 billion in sales, a 15 percent increase over the previous year.
However, traditional variable annuities faced a decline, recording the lowest sales figures for both the quarter ($12.3 billion, down 3 percent year-over-year) and the year ($51.4 billion, down 17 percent).
Limra predicts continued growth in the equity markets over the next two years will create tailwinds for VA sales to increase by up to 10 percent in 2024.
“The introduction of RILAs in recent years and expansion of FIAs have offered investors options to buy a product that provides upside investment potential with limited to no downside risk — a value proposition increasingly attractive to today’s investor,” Hodgens said.
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