No Lack Of Demand In The Annuity Space As Sales Climb

New first-quarter annuity sales figures released this week by the Secure Retirement Institute confirmed that the rebound is fully realized.

Rising interest rates and roaring stock market gains pushed the the U.S. annuity market to big growth. In the first quarter, total annuity sales were $60.9 billion, a 9% increase from first quarter 2020, according to preliminary results from the SRI's U.S. Individual Annuity Sales Survey.

But Todd Giesing, senior annuity research director, SRI, said the news is not all great within the quick annuity sales turnaround. He plans to discuss it today during an annuity forecast session at the LIMRA Retirement Industry Conference.

In particular, a concerning and extended trend is the decline in guaranteed income product sales. At a time when more and more baby boomers are retiring in need of guaranteed income they won’t outline, the sales of such products is in an extended decline, Giesing said.

Over a five-year period ending in 2020, sales of these income-focused products declined from $116 billion to about $60 billion in 2020.

“We don't think this is a lack of demand or need for guaranteed income,” Giesing said, “because all the demographics point to a demand that needs to be increasing, as fewer people have the backstop of a corporate pension.”

Instead, Giesing pointed to two reasons why consumers are avoiding guaranteed income annuities. For starters, low interest rates are limiting the guarantees offered by income annuities. Secondly, the pandemic forced many Americans to hunker down and focus on “short-term needs,” Giesing noted.

“We're hoping that as the pandemic subsides and vaccines roll out here in the U.S., people will get focused back on longer-term planning,” he said. “People may have a different view on mortality, too. Once they get out of this thing, it's going to be an interesting dynamic. We do expect income-focused sales to grow, but they will still be growing slow and steady.”

The Good News

The good news from the annuity sales front is just about everything else.

Structured, or registered indexed-linked, annuities, continue to rack up big sales numbers. The unique combination of low interest rates, a roller-coaster 21st century economy and an advancing baby boomer generation is making the upside-downside package offered by structured annuities very popular.

In the first quarter 2021, RILA sales were $9.2 billion, 89% higher than first quarter 2020.

“Simply put, the current economic environment favors RILAs,” Giesing said. “RILAs offer better pricing than indexed annuities to investors looking to mitigate downside risk and enjoy potential investment growth as the bull market continues.”

As more carriers enter the RILA market and some are expected to introduce GLB riders to this product line this year, SRI is forecasting RILA sales to grow as much as 50% in 2021 and the RILA market to grow through 2025.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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