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COVID-19 Hits Fixed Annuities Hard, While VAs Shine

Sales of fixed annuities were down by double digits, while variable annuity sales grew 16%, despite market conditions.

While fixed annuity sales saw a double-digit decline in the first quarter, they rebounded a bit in March; variable annuity sales rose 16% during the quarter despite the market volatility, according to the Secure Retirement Institute, a division of LIMRA, a trade association for the insurance and financial services industry.

Total fixed annuity sales equaled $29.5 million for the first quarter, down 22% from the first quarter of 2019. Fixed indexed annuity sales fell 12% from the year-ago quarter to $15.8 billion, marking the third consecutive year of a downswing. But sales of FIAs were up slightly in March, due to the market volatility.

Fixed-rate deferred annuities also took a hit, with sales at $9.8 billion during the quarter, a 35% reduction from a year ago.

“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.”

While fixed products suffered, variable annuities saw sales up for the fourth straight quarter. Variable annuity sales rose 16% from a year ago to $26.5 billion.

In the first quarter, registered index-linked annuity (RILA) sales soared 44% to $5.1 billion from the same period last year, setting a new record high since they were introduced in 2010. SRI predicts RILA sales will continue to increase in the second quarter.

Sales of fixed-rate deferred annuities were 4% higher than the fourth quarter, showing a demand for products that offer principal protection.

“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,” said Giesing.

SRI warned in the report that there is often a lag between sales and market conditions, so the market impact to VAs could show up in second-quarter sales data.

TAGS: Industry
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