What's Behind The Boom In Annuity Sales?

October 1, 2021

In the second quarter of 2021, annuity sales were off the charts.

“Our preliminary second quarter numbers are the highest we have seen since the fourth quarter of 2008, and the third-highest quarter on record,” says Todd Giesing, assistant vice president and head of annuity research at Windsor, Conn.-based Secure Retirement Institute (SRI).

Every quarter, SRI releases annuity sales data. But this release was particularly surprising to some, given the backdrop of the pandemic. Total annuity sales for the quarter jumped 39% from the corresponding period a year earlier, led by variable annuities, which surged 55%; fixed annuity sales rose 27%.

“As business continued to open up, Americans likely started to get back to a more normal mindset, bringing factors such as retirement and income planning discussions back to the table,” says Giesing.

Coming Off A Terrible Year

While that’s no doubt true, it’s also worth noting that the previous year’s figures were particularly bad. In 2020, second quarter sales dropped 24% year over year, with variable annuity sales down 20% and fixed annuities off by 26%. That, of course, was at the height of pandemic panic, a time when equity markets plummeted some 30% amid a near-total economic shutdown. From there, annuities sales practically had nowhere to go but up. They were bound to rebound.

Still, some advisors insist that last year’s drastic drop-off doesn’t completely explain this year’s quarterly uptick. “While the pandemic may have suppressed some 2020 sales, financial professionals continued to serve their clients remotely,” says Paula Nelson, co-head of individual markets at Global Atlantic.

Nelson argues that the sales increase reflects a growing appetite for what annuities offer—particularly, their advantages over fixed-income securities. “The sustained, long-term duration of the low-rate environment is reaching a critical point for people saving for retirement, and they are looking to annuities as a meaningful alternative, offering growth potential and tax deferral,” she says.

A Groundswell Of Demand

Frank O’Connor, vice president of research and outreach at the Insured Retirement Institute in Washington, D.C., says, “More Americans are reaching retirement age every day, so there is a groundswell of demand for guaranteed income and principal safety,” he says. At the same time, he adds, it’s “very difficult to find yield anywhere in fixed-income [markets] without going to riskier investments such as junk bonds.”

Low interest rates also help explain why variable annuity sales outstripped those of fixed annuities by 28% in the quarter. Fixed annuities have a fixed rate of return that’s essentially linked to interest rates. Variable annuities, on the other hand, invest in mutual-fund-like subaccounts whose value rises and falls with the equity markets. The long-running bull market has helped variable outsell fixed for several years.

“Many advisors who have slowed or stopped VA usage in the recent past are again reviewing [these annuities],” says Nicholas Ross, chief distribution officer at Financial Independence Group in Charlotte, N.C.

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