Nearly all types of
annuities fell by double digits due to low interest rates and fallout from
COVID-19
July 28, 2020 By
Emile Hallez
Annuity
sales took a massive hit during the second quarter, falling by 24% compared to the same
period of 2019, according to data this
week from the LIMRA Secure Retirement Institute.
The drop
in sales followed a smaller decline seen during
the first quarter of 2020, when the long-term fallout from the
COVID-19 pandemic had started to become evident.
Total
annuity sales were $48.8 billion during the second quarter, compared with $63.9
billion during the second quarter of 2019, according to the Secure Retirement
Institute. Sales fell most for fixed annuities, which were $28.3 billion for
the quarter, compared with $38.1 billion a year prior.
Of those
products, deferred income annuities were hit the most, down 50%, while fixed
immediate annuity sales came in 44% lower, and indexed annuity sales were down
by 41%. Structured settlements, meanwhile, were down just 6%, and fixed-rate
deferred annuities had sales only 1% below those of in the second quarter of
2019.
Variable
annuity sales were down overall by 20%, at $20.5 billion, although a subset of
products known by several different names — structured, buffered or registered
index-linked annuities — saw sales increase by 8%, according to the Secure
Retirement Institute. Those products provide a level of downside protection and
the potential for higher principal growth than indexed annuities.
Prior to
the second quarter, VA sales had been growing for four consecutive quarters,
according to the report. The figures represent the lowest sales for VAs since
1996, the trade group stated.
However,
May marked a low point for annuities as a whole, and sales will likely pick up,
said Todd Giesing, senior annuity research director at the Secure Retirement
Institute.
“We’re
very comfortable with where we are,” Giesing said. “Things are moving in the
direction that we thought they would in all product lines. We knew the second
quarter was going to be the pain point from the fallout of COVID-19.”
Last
month, the organization projected total annuity sales for 2020 to
come in somewhere between $205 billion and $222 billion, compared with $242
billion in sales seen during 2019. But sales could rise to as much as $225
billion in 2021 and $246 billion in 2022, the Secure Retirement Institute
projected.
Low
interest rates have made many annuities less appealing than they have been over
the past few years.
“Carriers
obviously are going to be looking at their business and more importantly, their
business mix,” Giesing said. “There are significant challenges in this type of
environment to profitability in certain product lineups.”
Nearly
every type of product has had to be adjusted, whether through pricing changes,
living-benefit reductions or lower rollup rates, he said. The low-interest-rate
environment could cause some product providers to shy away from income
annuities, but there will likely be opportunities for them to develop
registered index-linked annuities, he said.
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