In 2023, annuity sales soared to unprecedented levels, marking a historic milestone. This surge, as reported by the respected industry association Limra, was primarily driven by an escalated demand for fixed annuities, a trend fueled by the current economic climate.
Fixed annuities experienced a remarkable 36% growth last year, reaching $286.2 billion in sales. This increase is attributed to a combination of economic factors and a rising preference for secure investment growth. Bryan Hodgens, the esteemed head of Limra research, highlighted the significance of this growth, noting that annuity sales had never previously attained such heights. Despite a robust 20% increase in equity markets in 2023, investor apprehension regarding a potential downturn persisted. This concern, coupled with attractive interest rates, encouraged investors to secure favorable crediting and payout rates available through fixed annuity products.
Overall, the annuity market witnessed a substantial increase in sales, totaling $385 billion in 2023, up by 23% from the previous year. The fourth quarter of 2023 was particularly robust, with sales soaring to $115.3 billion, a 29% rise compared to the same period in 2022.
This impressive performance of annuities may significantly influence the ongoing policy discussions. The Department of Labor's contentious proposal to extend fiduciary responsibilities to a broader range of financial professionals, especially those involved in annuity sales, is under consideration. This proposal, announced by President Biden last October, specifically targets the annuity sector. While acknowledging that most advisors prioritize their clients' best interests, the President expressed concerns about certain practices in the industry, particularly regarding costly annuities.
Industry representatives, however, have strongly countered this view. They argue that insurance products, including annuities, are essential for comprehensive retirement planning. Limra's report corroborates this perspective, with the interest-rate environment playing a significant role in driving sales.
Fixed-indexed annuity (FIA) sales were particularly noteworthy, totaling $95.6 billion in 2023, marking a 20% increase from 2022. This growth is attributed to the rising interest rates, which enabled insurers to offer competitive crediting rates while safeguarding principal investments from equity market fluctuations. Hodgens anticipates a slight dip in FIA sales in 2024 due to expected interest rate adjustments. However, sales are projected to remain robust, nearing $100 billion by 2025.
Income products also saw remarkable growth, bolstered by the Federal Reserve's rate hikes. Single premium immediate annuity sales jumped 43% to $13.2 billion, and deferred income annuity sales surged by 96% to $4.1 billion.
Registered index-linked annuities (RILAs) too had a strong year, with sales increasing by 15% to $47.4 billion. The rising popularity of RILAs and FIAs may have impacted the demand for traditional variable annuities, which experienced a 17% decline in sales, reaching a record low of $51.4 billion.
Hodgens notes that the advent of RILAs and the expansion of FIAs have provided investors with options that offer the potential for investment growth with minimal or no downside risk. This value proposition is increasingly appealing in the current market. Looking ahead, Limra predicts that the continued growth in the equity market will drive a resurgence in traditional variable annuity sales, potentially increasing by as much as 10% in 2024 from their current levels.
