LIMRA expects explosive 2Q annuity sales results

Get ready for annuity sales to go from eye-popping to jaw-dropping in the second quarter, according to an early glimpse at LIMRA data.

When LIMRA’s preliminary figures for the quarter are released in the next week or so, expect fireworks, especially from fixed rate deferred, or multi-year guaranteed (MYGA), annuities, according to Todd Giesing, assistant vice president, LIMRA Annuity Research. That performance is on top of the boffo first quarter for the products.

Sales of all annuities, fixed and variable, are expected to surpass $74 billion, which would eclipse the previous record of $68.6 billion set in the fourth quarter of 2008.

MYGA sales are expected to be in the range of $25 billion to $30 billion for that product line alone, up from $15.9 billion in the first quarter, meaning an increase in the range of 57% to 89% over the first quarter. Sales may surpass the $26 billion highwater mark set in the first quarter of 2009.

Higher interest rates make the products an attractive safe haven in a crazy time for asset prices, much like MYGAs were following the 2008 crash.

The average rate on a three-year MYGA is about 3%, a great leap from the 1.3% average rate last June. Giesing said he has seen carriers offering 4% on products.

The higher rates have motivated three kinds of buyers, Giesing said.

1. Off the sidelines: Safe money has not been making much in savings accounts or CDs and now MYGAs offer a viable alternative, especially as inflation climbs.
2. Off the market: With bewildering tumult roiling equities markets, investors are looking for a more secure haven while still making some money on their money.
3. Off the bonds: “We're also hearing it's a great bond alternative strategy out there because as interest rates rise, that obviously negatively impacts the bond pricing,” Giesing said.

Another winner and also-rans

Fixed indexed annuities are also doing well, although not as meteorically as MYGAs. FIAs are expected to fall between $18.5 billion and $19.5 billion, just shy of their record of $20 billion set in 2019.

Rates are the biggest boost for the products, but they are likely being held back by the linkage with equities, Giesing said.

Income annuities – single-premium immediate and deferred income annuities – are expected to grow modestly. Even though these products are helped by rising rates, they are also hurt by the prospect of future rate increases.

“I think advisors and even investors may be in a wait and see mode because these products are irrevocable,” Giesing said of the reluctance to lock in rates now. “So we may see a delayed response to the income annuities. Based on the rise in interest rates, it may be Q3 or Q4 until we start to see some more meaningful growth in this category.”

Variable annuities are also following a similar track to the post-2008 crash period when VAs tanked for years.

“We are seeing some pullback in the traditional variable annuity space,” Giesing said. “These are products both with and without a guaranteed living benefit. That's why the total number [for all annuities] is not through the roof right now.”

Traditional variable annuity sales are expected to land between $15 and $16 billion for the second quarter.

“We may see numbers lower than we saw at the peak of the pandemic for this product set,” Giesing said. “For many investors, this is a new environment. They may have not had to deal with this or they haven't dealt with it in 14 or 15 years.”

Registered index-linked annuities, however, are doing very well despite their association with equities. They are expected to be close to their record quarter of $10.3 billion, which was set last year. Giesing said the number might exceed the record but not by much because of investor reluctance because of the equities connection.

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at stevenamorelli@gmail.com.

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Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at steve@innemail.com.