U.S. Annuities Thrive Amid Turbulent Times

November 17, 2022 — Boston

Advisors and clients flock to annuities for downside protection

Annuity sales have been on a tear in 2022, largely due to Federal Reserve interest rate hikes, which have allowed insurers to raise crediting rates on their fixed and indexed annuities. The rate environment, coupled with difficult market and economic conditions, have led to many advisors, and their clients, flocking to annuities for safety, according to The Cerulli Report—U.S. Annuity Markets 2022: Acclimating to Industry Trends and Changing Demand.

Cerulli believes that if the Fed continues raising interest rates, sales of fixed-rate deferred annuities will increase their hot streak. A declining stock market would only add to that momentum because advisors who embrace annuities will continue to seek the safety of fixed annuities. “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,” says senior director, Donnie Ethier. “However, it will take time to do so.”

At the same time, while annuities may flourish in the near term, Cerulli cautions 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,” says Ethier. “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 stabilize. This means, despite renewed interest in the solutions and increasing sales, the challenges that insurers were facing prior to 2022 will persist,” he concludes.

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