Annuity sales down 24% in Q2

Nearly all types of annuities fell by double digits due to low interest rates and fallout from COVID-19

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.