Displaying items by tag: annuities

According to LIMRA’s U.S. Individual Annuity Sales survey, U.S. annuity sales increased 16% to $79.4 billion during the second quarter. The top selling annuities were fixed-rated deferred annuities, which posted their best quarterly sales result ever. Sales came in at $28.7 billion, a jump of 79% from the prior year’s quarter. In fact, all fixed annuities showed positive growth. Fixed-rate deferred annuities are contracts that offer investors a fixed annual percentage yield with tax-deferred growth. They typically offer a higher rate of growth instead of an income stream over a specific period. The massive jump in sales can be attributed to the volatility in the markets this year and rising interest rates. The current average yield on a fixed-rate deferred annuity is around 3% or higher. Sales for traditional variable annuities didn't fare so well, falling 27% year over year to $16.5 billion, the lowest quarterly sales since 1995 due to market volatility. Variable annuities are tied to the market with no downside protection.

Finsum:Driven by market volatility, sales for fixed-rate deferred annuities had their highest quarter ever. 

As market volatility continues, investors are flocking to annuities. This could be the biggest year yet for annuity sales. Insurance industry data firm Limra is forecasting annuity sales in the range of $267 billion to $288 billion this year, which would break the record of $265 billion set in 2008, during the financial crisis. Annuities offer investors a way to hedge market volatility, so it would make sense that sales are way up this year. The S&P 500 is down over 20% so far for the year and it's only June. Bonds haven’t been much better as the iShares Core U.S. Aggregate Bond ETF, which tracks the U.S. bond market is down 11.5% year to date. Investors have also been enticed by better payouts amid a rising interest rate environment. These benefits seem to outweigh costly premiums and less liquidity.

Finsum: Annuity sales have been soaring as investors look to hedge market volatility, making them an attractive option for risk-averse investors. 

Annuities have been one of the hottest topics since the Secure Act 1.0, allowing them to be a part of retirement plans, and that could be ramping up. The House of Representatives has approved the Secure Act 2.0 with an overwhelming majority of 414-5. Provision 201 would allow the minimum requirements distribution age to be increased from 72 to 75. Another key part of the bill is the automatic enrollment in 401(k)s with a very high contribution percentage. Life insurers are ecstatic about the bill and many believe this will drastically increase the demand and supply of annuities.

Finsum: Most investors underate these small changes to legislation that really open the gates for investments and spur lots of interest.

The bond market has had extreme difficulties as of late, and most investors are looking to annuities for an income alternative, but what questions should they be asking themselves. The first is what is the term of the annuity? Duration and commitment play a pivotal role in how you are assessing the asset. How much is the surrender charge? Look for de-escalating surrender charges if you may get out early. How does your annuity generate interest? Many indexed annuities can be linked to the markets like the S&P 500 which can give stock exposure without as much risk. Finally, can you withdraw early, and what are the liquidity constraints? You may want to be able to have a flexible withdrawal amount in case of emergencies.

Finsum: With more investors turning to annuities, it’s critical advisors understand why they are using them as a financial vehicle.

Everyone is racing to develop and deliver a new ESG product, and annuities are just the latest on this trend. BlackRock is teaming up with RetireOne and Midland National to deliver an SG option for a Fixed Index Annuity. The index will seek to minimize its exposure to environmental risk and invest in companies with lower C02 emissions, better data privacy, and workforce diversity. ESG assets as a whole could make up 50% or more of assets under management by 2025 and this is an indication of how that trend is entering other industries. Disclosure and ESG risks are prominent considerations for many companies.

Finsum: This is a great option for investors wanting income and ESG to tackle two birds with one stone.