The financial environment in 2022 led more people to seek the protection offered by fixed annuities. This can be attributed to the unprecedented long-term market volatility and rising interest rates not seen since the financial crisis.
According to InsuranceNewsNet sales of protection-based annuities, which include fixed-rate deferred annuities, fixed indexed annuities without a guaranteed living benefit, registered index-linked annuities without a guaranteed living benefit and traditional variable annuities with a guaranteed minimum accumulation benefit, increased a staggering 60% in 2022.
Lots of these sales were made through the bank channel because fixed annuities can be a great alternative to bank certificates of deposit. Another intrigue of RILAs, FRDs and FIAs is that they are usually short-term investments. On average, they sit for three, five or seven years.
This rise in sales did also have a downside. The industry experienced several delays as they had a tough time meeting the demand for protection. The vast volume alone of annuity business left financial professionals with little to no time or resources to plan and put together more complex financial planning.
Yes, protection is hot right now, but financial professionals must not forget the importance and need for guaranteed lifetime income. LIMRA research states that the most important factor involved in purchasing an annuity is sitting comfortably with a guaranteed lifetime income/withdrawal features.
Since this sales trend won’t continue forever, financial solutions have to be kept in mind. It has been previewed that overall annuity sales will be in the $304 billion to $325 billion range in 2023, which is pretty even with the sales that took place in 2022. According to LIMRA, 2024 will be slightly lower.
For over a decade, annuity sales have been stable at the $210 billion to $250 billion range. LIMRA’s forecast also states that protection products will continue to be a boost of growth for the next several years. The product mix may change and shift, but LIMRA doesn’t anticipate sales going below these numbers.
Demographics that will affect the future of annuities are also plentiful. More people are reaching the age where one would consider purchasing one. The average age of an annuity buyer is in their early 60s, with the majority purchased by people between the ages of 55 and 70. It is clearly reported in Oxford Economics that the U.S. population aged 65 or over will grow by more than 8.3 million from 2022 to 2027.
In 2022, there was $113 billion in new FRD sales and most of these contracts will mature in 2025, 2027 and 2029. Where will this money go then? An FIA or a RILA? Or does it stay in the FRD? For more conservative investors, it will most likely stay in an FRD, but it depends on the economic conditions as well as the investors’ needs.
Flexibility is key for financial professionals right now and solution finding for clients is possible regardless of the future markets or what happens with interest rates. There is and always will be a need for lifetime income and financial security especially as more and more people reach the age of retirement.
For more information contact Annuity FYI at 1-866-223-2121 to speak to a registered agent or send us an email at support@annuityfyi.com.
Written by Rachel Summit
