Fixed annuity products were already forecast to have a challenging 2020—and then COVID-19 threw the hammer down in March, leading to double-digit declines across the board.
Total fixed annuity sales were $29.5 billion in the first quarter, 22% lower than first quarter 2019, according to preliminary results from the Secure Retirement Institute (SRI) U.S. Individual Annuity Sales Survey.
“At the end of 2019, we had forecasted fixed annuity sales to fall in 2020. However, the economic fallout from the coronavirus pandemic—prompting the Federal Reserve to cut interest rates to record low levels—created a challenging environment for annuity manufacturers,” said Todd Giesing, annuity research director, SRI. “All fixed products recorded double-digit declines.”
Fixed indexed annuity (FIA) sales were $15.8 billion, down 12% from first quarter 2019. This marks the third consecutive quarter of declines for FIAs. Despite the 113 basis point drop in the 10-year Treasury rate, FIA sales experienced an uptick in March due to the extreme volatility in the equity markets.
Fixed-rate deferred annuities fell 35% in the first quarter to $9.8 billion, compared with prior year results. However, this was 4% higher than sales results in the fourth quarter as investors sought the principle protection these products offer.
“As we saw during the Great Recession, we expect fixed-rate deferred product sales to improve in the second quarter as consumers seek to protect their investment from market volatility and losses.”
Single premium immediate annuity (SPIA) sales were $1.9 billion in the first quarter, contracting 32% compared with first quarter 2019. This is the lowest quarterly level of SPIA sales in nearly seven years. Deferred income annuities totaled $530 million in the first quarter, down 16% from prior year.
Variable annuity products shine in Q1
Total variable annuity sales rose 16% in the first quarter, marking the fourth consecutive quarter of sales increases.
“Despite the market volatility in March, variable annuity sales performed well,” Giesing said. “There tends to be a lag between market conditions and sales so we expect to see the impact of March’s volatility in the second quarter.”
Registered index-linked annuity (RILA) sales were $5.1 billion in the first quarter, up 44% from prior year. This is the highest quarterly sales recorded for RILAs since their introduction to the market in 2010.
“RILAs are positioned to do well under these economic conditions,” Giesing noted. “They offer the potential for growth with downside protection. We are forecasting RILAs to continue to grow in 2020.”
Preliminary first quarter 2020 annuities industry estimates are based on monthly reporting, representing 82% of the total market. A summary of the results can be found in LIMRA’s Fact Tank.
The SRI expects its top 20 rankings of total, variable and fixed annuity writers for first quarter 2020 will be available around mid-May, following the last of the earnings calls for the participating carriers.
For information on the Secure Retirement Institute, visit: www.limra.com/sri.