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A unique confluence of supply, demand and product innovation has made 2024 the year of the individual annuity. But with lower short-term interest rates and a cooling domestic economy on the horizon, the US life insurance industry will face a tall task in replicating the runaway success that individual annuity products have achieved.

This does not represent the first time we have taken a cautious stance on the growth outlook for the individual annuity business, specifically, and the US life and annuity sector as a whole. In the 2023 US Life and Annuity Market Report, which was published at a time the conventional wisdom favored the Federal Reserve’s lowering of its Fed funds target range during the first half of 2024, we declared that peak growth for the industry had passed. The higher-for-longer posture eventually adopted by the Fed, which forestalled any rate cuts until September at the earliest, rendered our outlook not only outdated, but dead wrong.

Through June 30, 2024, individual annuity direct premiums and considerations growth had topped 20% for three consecutive quarters and six out of the past eight reporting periods. From the start of 2003 through the beginning of that remarkable run at the midpoint of 2022, a stretch of 78 quarters, the individual annuity business had only achieved growth in excess of 20% on four occasions. This outsized expansion, in turn, supercharged overall growth rates for the US life industry, defying its reputation as a mature business.

The industry logged double-digit growth rates for the fourth quarter of 2023 and the first two quarters of 2024, and we would expect the trend to extend through the third quarter based on favorable comparisons and the prospective timing of Fed easing. It marked the first time in more than two decades that the industry’s overall growth rate had equaled or exceeded 10% more than twice in a row — and it only achieved that feat due to easy comparisons in 2021 from the depths of the pandemic in the prior year.

Given the sensitivity of key individual annuity products to interest rates, it would be reasonable to expect that production of new business will fall precipitously in the fourth quarter of 2024 and beyond, especially when contemplating the forthcoming year-over-year comparisons to reporting periods in which the industry achieved record activity. In such a scenario, we would assume two key outcomes: 1) that individual annuity direct premiums and considerations would decline in 2025 — perhaps by a material amount depending upon the extent to which the Fed eases and the prospects for a weakening in the US economy; and 2) such a pullback would lead to the first full-calendar-year decline in total life, annuity and accident and health direct premiums and considerations for the industry since 2013.

But while there is no truly comparable historical precedent to lean on when forming an outlook for expansion at the line of business or industry levels under the current circumstances, there are factors on both the supply and demand side of the equation to suggest the presence of at least some resistance to the macroeconomic headwinds that appear to be forming. On the supply side, there is a broad and deep selection of individual annuity writers that have demonstrated the wherewithal to create products that are well-suited to a changing environment. On the demand side, the favorable demographics of an aging American population and continued evidence of excess savings should support individual annuity sales even in a period of falling rates.

As such, we expect the overall rate of growth in total life, annuity and accident and health direct premiums and considerations to fall precipitously, but remain positive through the course of our five-year forecast. Our outlook contemplates growth at a modern-day high of 12.8% in 2024 and what would become a 12 year low of just 0.4% in 2025.

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