1st Half Index Annuity Sales Hit New Record Of Nearly $5 Billion

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Equity index annuities hit another sales record in the 2nd quarter of 2002–almost $2.8 billion. Adding in 1st quarter sales of $2.1 billion, the product line produced nearly $5 billion in the first half of the year, says Jack Marrion, president of The Advantage Group, a Maryland Heights, Mo., index product tracking service.

The 2Q sales represent a 74% increase over the same period last year and a 29% increase over 1Q sales this year, Marrion adds.

The results come from The Advantage Groups quarterly survey of EIA providers. Thirty-four of the 36 fixed index annuity insurers currently in the business responded to the survey; they represent an estimated 99% of sales, Marion says. (Two carriers declined to participate, so their sales are estimated, he says.)

According to the survey, 43% of new index annuity sales in the 2nd quarter came from clients who made 1,035 exchanges from existing annuities into an index product, he points out.

“This percentage is up from the 40% shown when we last asked about exchanges in October 2001,” Marrion says. The increase is likely due to the fact that 16 index annuities now offer first-year premium bonuses, whereas only a handful had that feature last October, he says. (Note: Bonus annuity sales accounted for 43.77% of 2nd quarter production, the survey says.)

The new money percentage–57%–is much higher than that for variable annuity and traditional fixed annuity sales, Marrion points out.

“My understanding is, a good deal of the 1,035 exchanges are coming from variable annuities,” he says. “Some VA owners probably have found they shouldnt have been in a VA in the first place. They may have realized that they are savers, not investors. The index annuity more closely fits their risk tolerance.”

In general, he says, index annuity buyers like the fact that the products offer protection of principal (through the guaranteed minimum interest rate feature) plus the opportunity to earn higher returns (through excess interest crediting keyed to performance of a market index, such as an equity or bond index).

Some index annuities have several index buckets, including a fixed interest bucket. In those products, Marrion says, “my preliminary research indicates many policyowners are putting most or all their money into the fixed-interest bucket right now. They are probably waiting out the market downturn before deciding what to do next or which index bucket to choose.”

Agents tell Marrion they are increasingly positioning fixed index annuities against traditional fixed annuities (which have no indexing linkage). This is a big difference from past years, when they positioned the index product against VAs, Marrion says.

In fact, he says, some agents are actually selling the index product against traditional fixed annuities, pointing out that the index policy provides not only the guaranteed floor common to both product types but also “a chance to beat the traditional fixed annuitys interest rate.”

In the 2Q survey, 90% of the insurers said the agency channel accounted for the lions share of their index annuity sales. Specifically, the companies said 95.2% of 2Q sales came from the agency channel, 2.2% from the bank channel, 0.9% from the broker-dealer channel, and 1.6% from career agencies.

Index insurers hope to beef up their sales in the other channels as well, Marrion says. Meanwhile, variable insurers are starting to set strategies for competing against index annuities.

The fact that index products sold nearly $5 billion in the first six months has “gotten the attention” of the variable companies, he explains. “Variable wholesalers are also hearing about the index products when they go out to talk with reps,” he says.

The competitive environment should become even hotter, when more big-name players get into the market, Marrion predicts. “They will probably go after the markets that the current players have not yet penetrated–the banks and the broker-dealers.”

The top three index annuity players in 2nd quarter survey were, in descending order, Allianz, Midland National Life, and American Equity. They held the same positions in the previous two quarters.

Other 2Q findings: Index annuities with surrender periods of over 10 years had 71% of the market (compared to 88% in the 1st quarter); the average index annuity premium was $36,807; at 33 index annuity carriers, representing 90% of 1Q sales, the average street commission was 10.38% of premium; and equity index life insurance sales were also up slightly ($27.5 million, compared to $27 million in the 1st quarter).

The report also offered this surprise: The ING SmartDesign Multi-Rate Index Annuity, which debuted in the 2nd quarter, brought in $788,894,366. This figure is not included in the above totals, Marrion says, because SmartDesign is a registered, not fixed, product. For the few other registered index-oriented products that debuted in previous years, sales were either modest or did not take off, he says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 16, 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.