Annuities take pleasure in their greatest first quarter gross sales in historical past

One other quarter, one other document for annuities.

Within the first three months of 2024, annuities loved their highest first-quarter gross sales ever recorded. Complete U.S. annuity gross sales for Q1 had been $113.5 billion, a 21% improve over final 12 months.

“The outstanding gross sales developments over the previous two years continued into 2024,” mentioned Bryan Hodgens, head of annuity analysis at LIMRA, an industry-funded analysis group that is been monitoring the merchandise for the reason that Eighties, in a assertion.

The most recent haul continues an extended sizzling streak for annuities, insurance coverage merchandise that present a pension-like earnings throughout retirement. Two years in the past, 2022 turned the strongest gross sales 12 months within the merchandise’ historical past — after which 2023’s gross sales shattered that document. Even by itself, the ultimate quarter of 2023 marked annuities’ best-ever quarterly gross sales.

Why are annuities flying off the cabinets? The best reply is rates of interest. To deliver down inflation, the Federal Reserve has raised charges to their highest degree in many years. Which means increased yields from bonds, which make up a big a part of many annuity portfolios — so the upper the rates of interest, the larger the funds from annuities.

There’s additionally one other issue: Time could also be operating out. Because the Fed contemplates reducing charges a while this 12 months, the unusually excessive yields from annuities may come down at any minute.

“It is a hearth sale,” mentioned Dennis Huergo, vp of Wealth Enhancement Group in Plymouth, Minnesota. “Shoppers are locking in increased charges in anticipation of the Fed reducing charges.”

Within the first quarter of 2024, several types of annuities loved various ranges of success. Main the pack had been fixed-rate deferred annuities, which supply clients a hard and fast, tax-deferred rate of interest. In Q1, FRD gross sales reached $48 billion — 16% increased than in the identical quarter final 12 months.

“Fastened deferred annuities are main the surge as a result of they pay barely higher charges than CDs however include multiyear tax deferrals, which will be enticing,” Huergo mentioned.

READ MORE: 2023 shatters all-time document for annuity gross sales

Additionally standard had been mounted listed annuities, which comply with the efficiency of an index fund however present draw back safety. From January by way of March, these merchandise took in $29.3 billion — a document first quarter for the class.

“FIA merchandise proceed to supply very aggressive crediting charges whereas defending the principal funding, a horny proposition for in the present day’s traders,” mentioned Hodgens.

Revenue annuities, that are bought with a lump sum, additionally carried out properly. Single premium rapid annuities, which begin funds virtually instantly, raked in $4 billion — a 19% soar from the primary quarter of 2023. And gross sales of deferred earnings annuities, which delay funds till a sure date or occasion, reached $1.1 billion — up 35% from final 12 months.

Annuities’ youngest class, registered index-linked annuities, loved their fourth consecutive quarter of document gross sales. These comparatively new merchandise, just like mounted listed annuities, are linked to an index fund however set limits on losses. Within the first months of 2024, RILA gross sales reached $14.5 billion — 40% greater than final 12 months.

Even variable annuities, which haven’t bought practically in addition to different classes lately, loved an unusually good quarter. Like RILAs and FIAs, these merchandise are tied to the efficiency of the inventory market — however in contrast to the others, they don’t present draw back safety. 

Stung by the inventory downturns of 2022 and volatility of 2023, clients largely shunned variable annuities. However amid the upswings of early 2024, gross sales have began to tick upward.

READ MORE: Ask an advisor: Annuities, what are they good for?

“Robust fairness market efficiency over the previous 12 months has made conventional VAs extra enticing,” Hodgens mentioned. “Whereas these merchandise is not going to command the market share they did 10 years in the past, LIMRA predicts the continued fairness market progress will propel conventional VA gross sales to develop as a lot as 10% in 2024 from present ranges.”

The place will annuities go from right here? Hodgens is inspired by the newest numbers, however he additionally sees challenges forward.

“Favorable financial situations and rising investor curiosity in securing assured retirement earnings have resulted in double-digit gross sales progress in each product line,” he mentioned. “Whereas there are potential regulatory and financial headwinds within the second half of the 12 months, LIMRA expects annuity gross sales to proceed to carry out properly.”