Economically, 2022 brought the highest inflation in four decades and a stop to the decade-long bull market. It also marked something else: the best year of annuity sales ever recorded.
Total sales of the insurance products last year topped $310.6 billion, 17% more than the record set during the 2008 financial crisis — which, until last year, had been the all-time high. Sales from last September through December reached $87.2 billion, a new quarterly record, according to
"This was by far the best year ever," said Todd Giesing, the vice president and director of annuity research at LIMRA. "It's not even close."
Annuities, which are complex insurance products that provide a pension-like income in retirement, tend to sell better during times of economic uncertainty — and that's one thing 2008 and 2022 had in common. Last year, the S&P 500, Nasdaq and Dow Jones all suffered their worst 12 months since 2008. Meanwhile, inflation rose to levels not seen since the early 1980s.
As equities tumbled, many investors flocked to the relative stability of annuities — particularly fixed annuities, which deliver a minimum rate of return regardless of what the stock market is doing. In the fourth quarter of 2022, sales of fixed-rate deferred annuities reached $37.5 billion, 241% higher than the same quarter in 2021 and an all-time high for the category. Sales of fixed indexed annuities were $21.9 billion, also a new record.
"People are seeking out safety and taking risk out of their portfolios," Giesing said.
Still, fixed annuities do not provide protection against inflation. The drawback of a fixed rate of return is that while it's shielded from stock downturns, it may not keep up with rising consumer prices. But in another way, Giesing said, inflation may have contributed to the demand by adding to investors' general sense of economic instability.
"From the standpoint of annuity sales, I don't think rising inflation is going to change, at an industry level, purchases of these products unless there are solutions that can help offset inflation," he said. "But I think what it did is — it's just another pressure on American investors. And it's something they haven't seen in a long time."
A product introduced a few years ago, registered index-linked annuities (RILA), had a solid if not spectacular quarter. RILA sales reached $9.9 billion, down 4% from the fourth quarter of 2021. Nevertheless, total sales for 2022 were $40.9 billion, 6% higher than the previous year and a new all-time high for the category.
Variable annuities, meanwhile, did not fare as well. In the fourth quarter, sales of traditional variable annuities sank to $12.6 billion, 42% down from the same quarter in 2021. Their total sales for 2022 were $61.7 billion, a 29% drop from the previous year. Unlike fixed annuities, these products are tied to the performance of an investment portfolio, typically including stocks — which in a year like 2022 may have detracted from their appeal.
"With the market going down, people have less appetite for that," said David Lau, the founder of
The average fee on a variable annuity is
The fact that 2022 has now surpassed 2008 in terms of annuity sales — typically a sign of an aversion to risk by investors — invites comparisons between the two years. In terms of stock losses, 2022 was nowhere near as severe as 2008. For example, the S&P 500 fell 19.4% last year, but plummeted by
"It's two different scenarios, but I think there are some similarities here," Giesing said. "I think the first one is, when you think about the last decade, especially from equity markets and economic standpoint, we haven't had a lot of distress … I think this was the first time that we've seen a situation where investors got nervous because of how long the stress on the system was there."
As for 2023, Giesing and Lau have slightly different forecasts.
"I expect it's going to be another record year," Lau said. "I think you're seeing additional markets for the products and higher-quality products. So I think it's just the beginning of what's going to be a continued boom."
Giesing's prediction was more measured. Some product lines are likely to grow, he said, while others may "come back to a semblance of reality" after the dizzying heights of 2022.
"Our forecast has sales just south of $300 billion for 2023," he said. "So, historically very strong, but not at the level we saw from last year."
