Rising interest rates and continued market gains spur growth in the U.S. annuity market.
In the first quarter 2021, total annuity sales were $60.9 billion, a 9% increase from first quarter 2020, according to preliminary results from the Secure Retirement Institute U.S. Individual Annuity Sales Survey.
“Annuity manufacturers are cautious but optimistic due to improving market conditions. The S&P closed 6% higher at the end of the first quarter and the 10-year Treasury rate nearly doubled in the first three months of 2021 to 1.74%,” said Todd Giesing, assistant vice president, SRI Annuity Research. “While SRI expects the equity markets to continue to improve in 2021 and interest rates to experience slow growth, concerns about increased regulations may disrupt the market.”
Total variable annuity (VA) sales were $29.9 billion in the first quarter, up 15% from prior year. This represents the highest quarterly VA sales recorded since fourth quarter 2015. SRI predicts VA sales to grow as much as 9% in 2021, and forecasts positive growth in this market through 2025.
Traditional VA product sales have slowly improved quarter over quarter since second quarter 2020 but still fell 2% below the first quarter 2020 results to $20.7 billion.
“Low interest rates continue to deter manufacturers from selling traditional VAs with guaranteed living benefit riders,” noted Giesing. “Today, almost two-thirds of the VA GLB business is written by the top three VA carriers. As many traditional VA companies focus on the continued growth with protection-based offerings, this will offer little growth opportunities for investment-focused traditional VAs in the short term.”
Registered index-linked annuity (RILA) sales continue to experience significant growth as additional companies introduce new products. 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,” said Giesing. “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.
Fixed-rate deferred annuity sales were $14.3 billion in the first quarter, 46% higher than prior year results. While SRI predicts fixed-rate deferred annuity sales to contract slightly in 2021, it expects sales growth to rebound in 2022 and beyond.
“Consumers, still reeling from the economic fallout from the pandemic, are seeking principal protection, and crediting rates for fixed-rate deferred products remained steady and well above any other short-term investment vehicle, like CDs,” Giesing said. “Over the past three years, nearly $150 billion has been invested in short-term fixed-rate deferred products. These assets will be coming out of their surrender periods over the next couple of years. Given the current market conditions, we expect many investors will likely reinvest in fixed-rate deferred annuity products due to the rising rates, driving sales to close to $50 billion over the next few years.”
Fixed indexed annuity sales dropped 15% in the first quarter to $13.7 billion. Despite the first quarter decline, improving interest rates should buoy FIA sales throughout the year. SRI is forecasting FIA sales to increase 8-17% in 2021.
While improved, interest rates remain very low, undermining interest in income annuity products. In the first quarter, immediate annuity sales were $1.4 billion, 26% lower than prior year. Deferred income annuities dropped 13% to $410 million. Total fixed annuity sales rose 4% in the first quarter to $31 billion.
Preliminary first quarter 2021 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 first quarter 2021 will be available around early June, following the last of the earnings calls for the participating carriers.