COVID-19 triggered perfect storm of headwinds, with better sales climate not expected until next year
Annuity sales in the U.S. are set to struggle in 2020, with a rebound not in the cards until at least next year.
According to forecasts from the Secure Retirement Institute (SRI), total annuity sales in the U.S. will drop between 8% and 15% this year. It cited the fact that the COVID-19 pandemic has triggered ultra-low interest rates, extreme market volatility, and record-high unemployment – conditions that generally make for weak annuity sales.
However, SRI sees a brighter outlook for 2021 and 2022. Aside from a slow rise in equity markets and interest rates, it expects an expansion in the number of people aged 65 and older to enable an annuity market rebound that will make up for losses in 2020.
One corner of the annuity space is also expected to thrive this year. According to Todd Giesing, senior research director, SRI Annuity Research, registered index-linked annuities (RILAs) are uniquely positioned to thrive under current conditions as they “offer investment growth opportunity with limited downside risk.”
The lone annuity product poised for growth in 2020, RILAs are expected to reach nearly US$20 billion as consumers seek a balance of protection, safety, and growth potential. A sub-segment of variable annuities (Vas), they’re expected to represent nearly a quarter of all US VA sales by 2021, and continue their expansion in 2022.
Looking at the broader VA space, SRI predicts a drop of as much as 15% in 2020, mirroring the decline seen in 2009. Fading market volatility and improved consumer confidence are expected to allow VA sales to recover lost ground in 2021, with growth continuing in 2022.
Fixed-index annuity (FIA) sales are predicted to drop 25% this year amid low interest rates and continued market volatility. As economic conditions improve and allow carriers to justify raising cap levels, SRI predicts FIA sales will rebound in 2021 and exceed the record levels set in 2019.
The near-zero rate environment is also expected to challenge income annuity sales, which SRI forecasts will plunge by at least 40% this year. While rising rates will help improve sales in 2021 and 2022, SRI does not foresee a return to record sales levels seen in 2019.
