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