Displaying items by tag: annuities

Insurance companies are increasingly turning to asset-backed bonds to support annuity payouts amid surging demand for retirement income products. Securitized assets now make up a quarter of insurers’ bond holdings, with exposure growing by $365 billion since 2017, according to Morgan Stanley. 

Higher interest rates have fueled record annuity sales, reaching $432.4 billion in 2024, marking a 12% annual increase. This trend has intensified insurers’ appetite for asset-backed securities (ABS) and collateralized loan obligations (CLOs), which saw combined holdings rise to $312 billion last year. 

Esoteric ABS, including whole business and digital infrastructure securitizations, have become key components of insurers’ portfolios due to their yield and duration advantages. As demographic shifts drive continued demand for annuities, Morgan Stanley projects structured credit exposure to grow at a 6% annualized rate through 2027.

Finsum: It’s important to understand the underlying structure of annuities, because it tells a compelling story for their high demand. 

Total annuity sales reached a record $432.4 billion in 2024, marking a 12% increase from the previous year and the third consecutive year of growth. Despite strong overall performance, declining interest rates in late 2024 led to a 13% drop in fixed-rate deferred and income annuities, as investors shifted toward products with higher growth potential. 

Traditional variable annuities saw their first annual increase in three years, rising 19% to $61.2 billion, fueled by strong equity markets and product innovation. Experts anticipate continued strength in annuity sales for 2025, and variable annuities could have another positive year’s annuities. 

LIMRA attributes this sustained demand to growing consumer interest in investment protection and guaranteed retirement income. Final industry rankings for 2024 will be released in March after earnings reports are completed.

Finsum: This could be the play for income investors worried about rising rates but need some upside exposure in 2025. 

A surge in annuity sales over the past few years has been driven by retiring baby boomers and elevated interest rates, with total sales surpassing $1.1 trillion between 2022 and 2024. Fixed annuities, which function similarly to certificates of deposit but typically offer higher returns, have been particularly popular, with some rates reaching 5.85% in early 2025. 

However, as interest rates begin to decline, the appeal of these straightforward products may diminish, prompting investors to explore alternatives like fixed-index annuities. These annuities link returns to market performance while guaranteeing principal protection, making them an attractive option in uncertain economic conditions. 

Despite their benefits, fixed-index annuities come with complexities, including caps on returns and intricate contract terms that require careful scrutiny. As the market evolves, investors should prioritize transparency and fully understand their options before committing to an annuity in 2025.

Finsum: With the potential of interest rates staying flat we could see more investment in index annuities in 2025. 

Protective Aspirations variable annuity offers clients flexibility and guaranteed lifetime income, addressing retirement concerns like market volatility, healthcare costs, and evolving financial needs. With features like SecurePay Protector, it enables higher early retirement income, while also adapting to unforeseen challenges. 

The single-age withdrawal rates stand out, allowing retirees to maximize value based on their exact retirement age rather than broad age bands. For healthcare, the SecurePay NH benefit provides additional income during nursing home stays without impacting lifetime guarantees.

 Protective’s focus on customization and strong guarantees ensures financial professionals can build tailored strategies for long-term stability and adaptability. 

Finsum: Variable annuities offer an appealing solution for those who want a little more flexibility in  their annuity  options for 2025

The Salt Financial Annuity Index Report for December also serves as the 2024 year-end review, showcasing trends in annuity index performance. U.S. large-cap equities and gold delivered strong gains, while small caps, international stocks, and bonds lagged, contributing to better returns for equity-only volatility-controlled strategies over multi-asset designs. 

Despite solid nominal returns, higher volatility in technology-heavy indices reduced their risk-adjusted performance compared to broader benchmarks like the S&P 500. Excess-return structures in annuities, combined with elevated interest rates, weighed on returns, particularly for bonds and multi-asset indices. 

Equity-only indices tied to U.S. large caps led the pack, but the cyclical nature of markets underscores the importance of diversification. 

Finsum: Advisors should consider dynamic strategies to optimize their clients’ outcomes.