Annuity sales enjoy another 'astronomical' quarter

Even as economic conditions changed last quarter, the Great Annuity Boom continued.

From July through September 2023, total sales of annuities — insurance products that provide a pension-like income — hit $89.4 billion, according to LIMRA, an industry-funded research group. That's an 11% increase over the same quarter last year.

The latest figures extend a long winning streak for the products. In 2022, annuities enjoyed their highest yearly sales ever recorded, and the first quarter of 2023 set a new quarterly record.

In terms of overall sales, this latest quarter was not record-breaking. But that's partly because the new heights reached in the past year and a half are tough to beat.

"These numbers are still astronomical, historically," said Todd Giesing, director of annuity research at LIMRA. "We actually have to redefine what a good quarter is."

Annuities, which promise a fixed income stream during retirement, generally sell better during times of economic uncertainty. But over the summer, the boom continued even as the U.S. economy in some ways improved. 

Inflation last quarter remained relatively low, with the consumer price index rising at 3.7% in September — far lower than its 9.1% peak in June last year. And according to new data from the U.S. Department of Commerce, GDP grew by 4.9% — its highest rate since 2021.

Even the stock market, which remains uneven, did well at the start of the quarter. In July, the S&P 500 rose by 2.9%.

Part of the reason sales have not slackened, Giesing said, is that some annuities offer a rare combination: profit from stock market upswings, but also some protection from downturns. Registered index-linked annuities (RILAs), for example, are tied to the performance of an index fund — but they also set a cap on gains and, importantly, on losses.

Ashley Folkes, a certified financial planner at Inspired Wealth Solutions in Birmingham, Alabama, said he sometimes recommends RILAs to clients for exactly that reason. 

"I use registered index-linked annuities periodically," Folkes said. "They provide upside potential of index market returns but with downside buffers. The buffers give some people peace of mind due to the market's volatility."

Last quarter, RILA sales reached a new record: $12.6 billion, a 19% increase from last year.

READ MORE: What's fueling the Great Annuity Boom?

Other categories saw strong sales as well — particularly among fixed annuities, which deliver a minimum rate of return regardless of what the stock market is doing. Fixed indexed annuities reached $23.3 billion in the third quarter, up 9% from last year. And fixed-rate deferred annuities sold $34.4 billion, a 15% increase from last year.

One of the biggest winners was deferred income annuities, which delay payments until a certain date or event. In the third quarter, sales of these products jumped 88% from last year, rising to $950 million.

One factor behind this increase is rising interest rates. The Federal Reserve has raised rates 11 times since March 2022. This has led to higher yields from bonds — a U.S. 30-year Treasury bond, for example, now yields about 5% — and those bonds make up a large part of many annuity portfolios.

"These products are obviously benefiting from the significant increase in interest rates," Giesing said.

Overall, total annuity sales so far this year have reached $270.6 billion, 21% more than in the first nine months of 2022. That year saw the strongest sales in history — $310.6 billion — but Giesing thinks 2023 will soon surpass it.

"I'm more than confident now," he said. "We're going to see sales that are north of $350 billion this year, significantly higher than what we saw last year."