Equity Index Annuity Sales Hit Another Record Last Year

The new products tended to fall into two categories, Marrion says. One category was EIAs that offer a bonus interest rate. The other category was EIAs that offer multiple interest rate options that differ according to type of index used (S&P, Dow, etc.) in the interest crediting computation.

In view of these trends, he says, the EIA story for 2001 came to this: Fewer companies offered more products and collectively generated more volume than the EIA industry has ever seen.

Two key factors accounted for much of that growth, Marrion believes. For one, the volatile economy spurred more consumers to consider–and actually buy–annuity products that offer downside guarantees, he says. Such products include EIAs and traditional fixed annuities.

The second factor, Marrion contends, is that the EIA industry players continued trying to carve out a niche for themselves during 2001. Thats why they introduced bonus products and new index options, he says–to attract more attention to their policies.

“The strategy worked, where bonus products are concerned,” Marrion adds, noting that in the 4^th quarter of 2001, bonused EIAs took a 33% market share, up from under 7% in the 4th quarter of 2000.

But EIAs having multiple interest options did not fare as well, he says. Their sales were nominal.

Another trend: Over 50% of the EIA sales in 2001 were 1035 exchanges from existing annuities–both variable and fixed. Thats close to, but somewhat higher than, the percentage in 2000, when 1035 exchanges into EIAs represented a little under 50% of total sales.

The year was notable in another way as well: Only one carrier (Americom) entered the business. (Note: Another carrier did make an entry–actually, a re-entry–but it soon left.)

Marrion does not think the eight departures and the low number of entries indicates the market is drying up.

“Most of those that leave the EIA market do so because they never reach critical mass,” he says, “or because they get purchased by another company that does not want to offer EIAs.”

As for the slowdown in new players entering the market, he suggests this reflects the state of the economy more than anything else. “In 2001, some companies were not comfortable with the volatility in the options market (used in pricing EIAs). And others found traditional fixed annuity sales had picked up, so they had to turn their attention to that business.”

Considering that the top 10 companies are doing 80% of the sales, Marrion predicts that other insurers will also leave the market.

“However, I expect the old line companies and wire houses to get into the market later this year. The calls Ive been getting suggest they see the need for the product. Several plan to respond to that need by offering proprietary products of their own.”

The year 2002 should also see launches of “tons of new EIAs” from existing carriers, he says, noting that many held back their rollouts in 2001 because it was such a difficult year. “Now, there seems to be more direction in the economy, and that will encourage carriers to bring out new products.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, March 18, 2002. Copyright 2002 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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