Annuity sales hit a record last year as investors looked to protect their portfolios with a stable income amid rising interest rates and accelerating inflation.
Annuities serve as insurance by providing a fixed stream of payments, guaranteeing a payout for the duration of the time one holds them. Thanks to record sales of fixed annuities, overall total annuity sales surged to $310.6 billion, a 22% increase from 2021, according to data from LIMRA Annuity Research.
That broke records set in 2008 during the Great Recession, when investors seeking the security provided by annuities bought $265 billion of them.
The S&P 500 suffered a 46% loss from October 2007 to March 2009, and annuities purchases ballooned in response.
Markets in 2022 followed similar trends. The S&P 500 fell about 19.5% as the Federal Reserve hiked interest rates seven times to control inflation, sending investors searching for more secure returns.
Total annuity sales rose 39% in the last three months of 2022 from a year earlier to $87.2 billion. It was the third consecutive quarter that annuity sales set a record.
“Fluctuating interest rates in the fourth quarter prompted investors to lock in crediting and payout rates while they were high,” Todd Giesing, the assistant vice president at LIMRA, said in a news release. “Our forecast suggests that protection products will continue to boost growth in the annuity market for the next several years.”
Among fixed-rate deferred annuity sales, numbers skyrocketed in 2022. Fixed-rate annuities allow investors to have a guaranteed rate of return over a set period, making them secure investments.
In the fourth quarter, sales rose 241% year-on-year, totaling $37.5 billion. It was the best sales quarter for fixed-rate annuities ever documented, according to LIMRA. Throughout the year, sales for fixed-rate deferred annuities set a new record, totaling $112.1 billion, a 38% increase from the previous annual high of $80.8 billion that was set in 2002.
Fixed indexed annuity sales also set a record in the fourth quarter and year. In the fourth quarter, sales increased 32% year-on-year, topping out at $21.9 billion. Over the year, sales for fixed-indexed annuities set a record at $79.4 billion, up 25% from 2021 and 8% higher than the previous record set in 2019.
Registered index-linked annuity sales fell 4% from fourth-quarter totals in 2021, amounting to $9.9 billion. Despite a slow fourth quarter, registered index sales rose overall, reaching a new all-time high of $40.9 billion in 2022.
Author: Meg Cunningham
Source: ©2023 dotdash
Retrieved from: investopedia.com
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Fixed Annuities are long term insurance contacts and there is a surrender charge imposed generally during the first 5 to 7 years that you own the annuity contract. Withdrawals prior to age 59-1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company.
Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company. Surrender charges apply if not held to the end of the term. Withdrawals are taxed as ordinary income and, if taken prior to 59 ½, a 10% federal tax penalty. Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated.