WINDSOR, Conn., Jan 26, 2020—Fourth quarter variable annuity (VA) sales increased 4% from prior year to $27.9 billion, powered by robust registered index-linked annuity (RILA) sales, according to preliminary results from the Secure Retirement Institute® (SRI®) U.S. Individual Annuity Sales Survey.
“Current economic conditions have made RILA products uniquely attractive to consumers seeking both downside protection and investment growth, drawing new manufacturers to the market,” said Todd Giesing, senior annuity research director, SRI. “Instead of new entrants cannibalizing market share from existing manufacturers, we saw strong sales growth for RILA products across the industry driving fourth quarter VA sales and overall industry sales to reach pre-pandemic levels.”
RILA sales were $8.3 billion in the fourth quarter, a 68% jump from fourth quarter 2019 and 33% higher than the $6.3 billion recorded in third quarter 2020. In 2020, RILA sales were $24 billion, up 37% from 2019 sales. RILA sales represented a nearly quarter of all VA sales in 2020.
Year-end total VA sales were $98.9 billion, down 3% from VA sales totals in 2019.
Total annuity sales were $58.7 billion in the fourth quarter, 2% above fourth quarter 2019 sales. Fourth quarter results, however, couldn’t overcome the steep drops experienced earlier in the year. In 2020, overall annuity sales dropped 9% to $219.1 billion.
While interest rates continue to improve through the fourth quarter, the 10-year treasury rate ended the year at 0.93%, a 95 basis point drop from the start of the year. This has a significant impact on guaranteed living benefits, and fixed indexed and income annuity product sales in the fourth quarter and for the year.
In the fourth quarter, fixed indexed annuity (FIA) sales were $14.3 billion, down 15% compared with fourth quarter 2019 results. After record-breaking sales in 2019, FIA sales fell 24% to $55.7 billion in 2020.
“Low interest rates continue to impact cap rates and guaranteed living benefits for FIA products, making them less competitive than they were a year ago,” says Giesing. “SRI projects slow improvement in the FIA market in 2021 as the economy improves and manufacturers and distributors overcome operational issues brought on by the pandemic.”
Income annuity products also continued to struggle under persistent low interest rates. Immediate income annuity sales were $1.6 billion in the fourth quarter, a 24% drop from fourth quarter 2019. For the year, immediate income annuity sales totaled $6.3 billion, falling 36% compared with 2019 sales levels.
Fourth quarter deferred income annuity (DIA) sales were $460 million, 13% lower than prior year. In 2020, DIA sales were just $1.7 billion, a drop of 31% from 2019.
Low interest rates had little impact, however, on fixed-rate deferred annuity sales.
Fixed-rate deferred annuity sales were $13.3 billion in the fourth quarter, up 41% from prior year. In 2020, fixed-rate deferred annuity sales totaled $51.7, a 9% increase from 2019 results and the highest fixed-rate deferred annuity sales recorded since the Great Recession.
“Continued market uncertainty made fixed-rate deferred products attractive for investors looking for safe, short-term investment growth,” Giesing remarked. “Currently, banks and broker dealers have limited alternatives because there are few protection products that can offer the same return on investment as fixed-rate deferred annuities. On average, the 3-year fixed-rate deferred crediting rates are double the 3-year CD rates being offered.”
Total fixed annuity sales were $30.8 billion in the fourth quarter, even with prior year’s results. For the year, overall fixed annuity sales were $120.2 billion, a 14% decline compared with 2019 sales.
Preliminary fourth quarter 2020 annuities industry estimates are based on monthly reporting, representing 86% of the total market. A summary of the results can be found in LIMRA’s Fact Tank.
The top 20 rankings of total, variable and fixed annuity writers for 2020 will be available around mid-March, following the last of the earnings calls for the participating carriers.
About Secure Retirement Institute®
The Secure Retirement Institute® (SRI®) provides comprehensive, unbiased research and education about all aspects of the retirement industry to improve retirement readiness and promote retirement security. For information on the Secure Retirement Institute, visit: www.limra.com/sri.