The Great Annuity Boom continued last quarter, but a close look at the details shows more change than meets the eye.
From April to June 2023, total sales of annuities — insurance products that provide a pension-like retirement income — reached $88.6 billion, a 12% jump from the same quarter last year,
That brings the total for the first half of 2023 to $182.7 billion — the highest sales annuities have ever recorded in the first six months of a year.
"We've seen sales go through the roof," said Todd Giesing, director of annuity research at LIMRA. "The sales volume we saw in the second quarter is historically very high."
The new numbers continue a hot streak that has kept going for almost two years. As a whole, 2022 was the
This may have been thanks to the state of the U.S. economy, which was highly tumultuous during that period. Inflation skyrocketed last year, reaching levels that had not been seen since the early 1980s. Stocks suffered as well, with the S&P 500, Nasdaq and Dow Jones all suffering their
All of this was good for annuities, which tend to sell better in times of economic uncertainty. Particularly popular were fixed-rate annuities, which deliver a minimum rate of return regardless of what the stock market is doing.
"What you're seeing across the board is the use of protection," said David Lau, the founder of
But now that the second quarter's numbers are in, the picture has begun to change — likely because of the changing economy. Inflation has significantly cooled, sinking from a year-on-year rate of 9.1% in June 2022
As the economy showed signs of improving, customers' taste in annuities evolved as well. Fixed-rate deferred annuities — in recent years, a popular shelter from stock market storms — took in $31.7 billion in the second quarter. That's still high, but it marks a 24% drop from Q1. And until now, the category had enjoyed four straight quarters of record-breaking sales. The latest numbers broke that streak.
"This is the first quarter where we saw fixed-rate deferred take a step back," Giesing said. "The numbers are still very, very strong. But I think we're seeing here in the second quarter … a shift in investors' risk tolerance."
Read more:
Meanwhile, a surprising category did better than usual: traditional variable annuities, which are directly tied to the stock market. Sales of these products reached $13.6 billion in Q2, up 5.4% from the previous quarter.
And one of the biggest winners of the last quarter was registered index-linked annuities (RILA), which are linked to the stock market but provide some downside protection. RILA sales soared to $11.6 billion in Q2, the all-time highest quarterly sales for the category.
Why did these products do so well? Giesing believes they reflect our transitional economic moment: Stocks are becoming attractive again, but investors still fear a downturn.
"I think we're starting to see a shift to the middle ground," Giesing said. "People want the opportunity, but they still want to layer on protection when they're looking at individual annuity products."
Some financial advisors say this is exactly the approach they take when considering annuities for their clients.
"I will use registered index-linked annuities periodically," said Ashley Folkes, owner of
Read more:
Overall, the second quarter of 2023 tells a complex story with a simple headline: Annuities have continued to sell at historic rates. But under the surface of that general trend, investors are in a complicated mood that is driving sales up for some categories and down for others. The winners in this contest are the products that match the complexity of the moment, providing access to the stock market's gains but also safety from its downturns.
If that shift continues, will 2023 still be — as Giesing predicted last quarter — an even bigger year for annuity sales than 2022? He thinks so.
"I think we're going to do better than last year," Giesing said. "It seems like right now it's more of that middle road — the balance of protection and growth instead of all growth opportunities. But give it another quarter or two, and we'll see what happens."
