Registered index-linked annuity (RILA) sales were $4.9 billion in the first quarter 2020, up 38% from the prior year results, according to final results from the Secure Retirement Institute U.S. Individual Annuity Sales Survey.
“Current market conditions favor RILA products more than fixed indexed annuities (FIA) as the increase in market volatility will help support crediting rates in RILAs,” said Todd Giesing, senior annuity research director, SRI. “As a result, SRI is forecasting RILA sales to increase more than 10% in 2020 while FIA sales are expected to fall about 20%.”
Final FIA sales were $16.2 billion, down 10% from first quarter 2019. This marks the third consecutive quarter of declines for FIAs. Continued low interest rates are expected to dampen FIA sales throughout the year. SRI is forecasting annual sales not to exceed $60 billion, far below the record sales of $73 billion set in 2019.
“Accumulation-focused FIAs without guaranteed lifetime benefit riders (GLB) experienced the greatest decline in the first quarter, down 13% compared with prior year,” noted Giesing. “These products’ crediting rates continued to decline in the first quarter because of the unfavorable interest rates, which were further exacerbated by the significant rate drop in March.”
Fixed-rate deferred annuities dropped 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 principal protection these products offer.
SRI predicts fixed-rate deferred annuity sales will benefit from investors seeking principal protection, which will keep sales level with 2019 results despite the ultra-low interest rate environment.
“As we saw during the Great Recession, we expect fixed-rate deferred product sales to remain steady in the second quarter as consumers seek to protect their investment from market volatility and losses.”
Income Annuity Sales Plunge
Total income annuity sales fell 29% in the first quarter of 2020, compared with prior year results. Falling interest rates have deterred investors from purchasing these products.
Single premium immediate annuities (SPIA) were $1.9 billion in the first quarter, down 32% in the first quarter, compared with first quarter 2019. This is the lowest quarterly level of SPIA sales in nearly seven years. Deferred income annuities totaled $470 million in the first quarter, down 26% from prior year.
SRI is forecasting income annuities to continue to contract in 2020, falling more than 35% from 2019 sales totals.
Total variable annuity sales were $26.0 billion, up 14% in the first quarter due to RILA sales expansion, marking the fourth consecutive quarter of sales increases.
“Despite the market volatility in March, variable annuity sales performed well,” said Giesing. “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.
“While RILAs are positioned to do well under these economic conditions and are expected to continue to perform well in 2020, SRI is forecasting overall VA sales to drop 10% in 2020,” Giesing noted. “Sales of VA products in 2020 will mirror the trajectory we saw following the Great Recession. Market volatility and low interest rates will force companies to carefully manage their VA business, limiting sales — especially products with GLB riders.”
First quarter 2020 annuities industry estimates, representing 94% of the total market, can be found in LIMRA’s Fact Tank.