With annuity sales surging amid higher interest rates, the industry should consider various steps to further expand the market, including developing new product concepts such as long-term care hybrids and pushing for more annuities in employer retirement plans, a new report from Cerulli Associates suggests.
If fixed annuity rates remain high enough, advisors and clients will likely continue to opt for a predictable return with full principal protection versus annuities that offer upside potential while risking principal, according to the firm, which released the latest edition of Cerulli Edge on Thursday.
Different types of annuities — fixed annuities, fixed indexed annuities (FIAs) and registered index-linked annuities (RILAs) — will likely compete more aggressively with each over the next five years if current market conditions hold, Cerulli said.
While RILAs have led all other annuity types in sales for several years, FIAs and traditional fixed annuities have become more competitive as interest rates have climbed, Cerulli noted. "In contrast, traditional variable annuities are having a rough time, achieving the lowest sales in 2022 since Cerulli started tracking this product," the report said.
Looking Ahead
As interest rates decrease over time, market share for FIAs as a percentage of total annuity sales will increase and reach 26% by 2027, followed closely by RILAs at 23% and traditional fixed annuities at 20%, Cerulli predicted.
"With financial markets and economic news remaining unsettling for many investors, annuities that provide predictable outcomes will remain a hot commodity," said Donnie Ethier, senior director, Wealth Management Research & Consulting at Cerulli.
