US annuities thriving amid economic volatility – Cerulli

Written by Michael Griffiths

17/11/2022

Annuity sales have been on a tear in 2022 largely due to the Federal Reserve’s interest rate rises, which have allowed insurers to raise crediting rates on their fixed and indexed annuities, according to Cerulli.

A newly published report from Cerulli, U.S. Annuity Markets 2022: Acclimating to Industry Trends and Changing Demand, stated that the rate environment, coupled with difficult market and economic conditions, have led to many advisers and their clients flocking to annuities for safety.

Cerulli suggested that if the Fed continues raising interest rates, sales of fixed-rate deferred annuities will “increase their hot streak”.

Furthermore, the report stated that a declining stock market would add to this momentum, because advisers who embrace annuities will continue to “seek the safety of fixed annuities”.

Cerulli senior director, Donnie Ethier, said: “Insurers may be able to leverage the current market conditions to continue reminding advisors of the cost-benefit of many annuities and specific features, including principal protection, income-taking solutions, long-term care hybrids, in-plan annuities, and inflation -protection features. However, it will take time to do so.”

At the same time, while annuities may flourish in the near term, Cerulli also cautioned insurers to avoid a “rate war” that could negatively impact individual issuers and potentially the perception of the industry.

“Carriers will need to manage client expectations as far as the kind of returns they will ultimately achieve,” Ethier added.

“While 2022 conditions have boosted overall annuity sales, the trends that have been in motion for a over a decade will likely return when markets stabilise. This means, despite renewed interest in the solutions and increasing sales, the challenges that insurers were facing prior to 2022 will persist.”

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