As the Fed continued to raise the Fed Fund Rate, what impact has this had on the annuity product lines? On the surface, we may know the answer; however, what does it really look like. In the following charts, DDW will compare how the different annuity lines fared in the increasing rate environment.
As the Fed Funds Rate increased, rate-driven products have capitalized on the continued increase in rates, especially fixed annuities. Fixed annuity sales have skyrocketed over the last three quarters. In the chart above, fixed annuity sales have mirrored the increase in Fed Funds Rate. In the most recent quarter, the chart does show fed funds stabilizing with either a decreasing growth rate or in fact holding steady, we also see Fixed sales stabilizing as well or even pulling back. History is interesting, if you are an historian, but we look at history to give us guidance as we look forward.
Looking at this across other investments products, annuities are behaving exactly like mutual funds and ETFs (see the Asset Flows article at the end of this publication). We have been in a risk off environment and the retail investor is investing in fixed income mutual funds, fixed income ETFs, and yes fixed or fixed index annuities. As with all past investment cycles, the retain investor usually lags the market (meaning they allocate to equities a little late in the cycle), but inevitably, VAs will make their come back along with other equity products in the market place.