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Contrary to expectations of many observers, equity index annuity sales did not sag in the 2nd quarter of 2001. In fact, on an industrywide basis, they broke their previous quarterly record (first quarter 2000).

That is the finding from an EIA sales survey just out from The Advantage Group, an EIA tracking service in Maryland Heights, Mo.

According to the report, 2Q 2001 EIA sales reached over $1.602 billion, eclipsing the $1.517 billion recorded for the 1Q 2000.

Furthermore, the 2Q total is up 27.21% over the 1Q 2001 total, and up 14.76% over the 2Q 2000 total, says Jack Marrion, owner of Advantage Group.

These figures reflect premium volume of 44 EIA carriers. “These carriers represent 93% of the active EIA companies and 99% of total EIA sales industrywide,” Marrion says. Results for three of the 44 are estimated, he notes.

EIAs are fixed annuities that link their credited interest (the interest paid above the guaranteed minimum) to performance of an equity index.

Many EIA watchers, even some EIA executives, had been bracing for less stellar results than what actually occurred. Sales in the preceding three quarters had fallen below previous highs (see chart), and these executives had expected more of the same in 2Q 2001.

The continuing volatility in the stock market was the chief reason for that prediction. The thinking was that the close association EIAs have with the stock market, due to their index-linking crediting method, would be a turnoff to potential buyers.

Some companies did see sales declines, Marrion concedes. But others saw huge increases. (See chart.)

For example, the 2Q sales leader, Allianz Life Insurance Company of North America, Minneapolis, saw EIA sales leap 42.10% over the 1Q, to $335.4 million in premium.

The annuity division of Midland National Life Insurance Company, West Des Moines, Iowa, came in second, with EIA sales soaring 63.05% to $281.1 million in premium.

American Equity Life Insurance Company, Des Moines, Iowa, came in third, with EIA sales rising 49.80% to $227.5 million in premium.

Why the surge?

“Turbulence and volatility in the equity markets is actually positive for EIAs,” contends Patrick Foley, president and CEO of Allianz Marketing Inc. “Unlike common stock and stock mutual funds, EIAs offer guarantees and safety of principal, and thus provide a safe haven for retirement funds.”

The products dont offer 100% of market gains, he allows. But “consumers who are planning for retirement are willing to accept a share of the potential upside of the market as long as the downside risk to their principal is eliminated.”

“Volatile markets drive people away from securities and towards safer money options,” agrees Robert Tekolste, vice president-marketing at Midland. EIAs are a “nice bridge” for this, he maintains. “Buyers know they wont lose principal if the market drops, and they know theyll actually gain” the guaranteed minimum interest when credited and, if the market goes up, the excess interest.

Lower yields offered by traditional fixed annuity and bank certificates of deposit have also helped spur EIA sales, Tekolste maintains.

Buyers of those products have been moving more toward EIAs in recent months, he says, to benefit from their more favorable returns and upside potential. (Declines in the cost of options used to support EIAs account for the better returns, he says.)

Another compelling factor is what Kevin Wingert, president of American Equity Life, terms “optimism.” People who believe a turnaround in the market is near want to get into an EIA now, he says, so their money will be able to grow with the market upturn.

The flexibility that comes with the multi-strategy options in some of the newer annuities is a factor, too, says Wingert. “Clients can put money into the fixed bucket, say, and benefit from its tax-deferred buildup. Then, if the market improves, they can move into an indexed bucket at policy anniversary (on annual reset policies) for the upside potential that offers.”

Simplifications in EIA designs have also helped sales, say executives. “For instance, many EIAs now offer annual crediting of the interest,” says Tekolste. “Many have fewer moving parts, too,” adds Wingert. And benefits like premium bonuses and 100% guaranteed participation add further value, says Foley.

EIAs are still complex products, however. So executives say they also offer intensive agent training, strong sales materials, disclosure and suitability reviews, and other services to support the presentation and consumer education process.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 27, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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