Fixed Index Annuity Sales Hit New Record Of $11.7 Billion In 2002

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Fixed index annuities continued on their record-setting sales track, producing $11.67 billion in sales in 2002, up 80% over 2001 results, according to The Advantage Group, a St. Louis, Mo., index annuity tracking service.

Sales of these products grew steadily in 2002, with each quarter hitting yet another sales record, says Jack Marrion, president of The Advantage Group. (See Chart 1.)

Fixed index annuities offer a minimum interest rate guarantee plus an opportunity to earn more via excess interest credits that are linked to gains in an equity, bond or other financial index. The policies are designed to appeal to buyers who are looking for a “safe” place to put some of their assets, but with the prospect of upside potential.

In the fourth quarter, total fixed index annuity sales reached a quarterly record of slightly over $3.4 billion, Marrion notes. Thats up only 3% over the third quarter sales, he says, but it is also up 68% from fourth quarter 2001 sales of over $2 billion.

The 2002 results were based on results of 32 fixed index annuity providers. Two of the providers did not participate in the survey so their results were estimated, says Marrion.

The 30 companies that did participate in the survey represent roughly 94% of the active index product companies, he says, adding that these companies produced about 99% of total sales industrywide in 2002. The survey was conducted in January and February of 2003.

According to the figures, the lead company in 2002, when ranked by sales, was Allianz Life. It produced over $3.4 billion in total fixed index annuity sales for the year, says Marrion. Midland National, American Equity, North American, and AmerUsGroup came in second, third, fourth and fifth, respectively (see Chart 2).

In the fourth quarter, a few insurers pulled index annuities from the market, Marrion notes. However, he believes the providers will introduce newer designs later this year. He expects these new designs will have shorter surrender charge periods and lower commissions than previously.

Still, in 2002, products with surrender periods of 10 years or longer continued to account for the lions share of sales. In 2002, these policies drew 87% of sales, according to the survey.

Also, index annuities with agent commissions of 9% or more represented 85% of sales in 2002, Marrion says.

He reports that two-thirds of the 30 companies participating in the survey attributed over half their 2002 sales to 1035 policy exchanges. That is, consumers were exchanging older annuities for a new index annuity.

“These companies said more of the old money came from fixed annuities than from variable annuities,” Marrion adds.

That means nearly half of 2002s sales represents “new money” coming into the industry from someplace else, he points out. By comparison, two years ago, fully 93% of index annuity sales came from new money sources, he says.

The source of the new money is unknown, according to Marrion. “The companies say they cant document where these checks are coming from. However, Ive heard, anecdotally, that the companies are seeing only a few checks coming in from the mutual fund and brokerage accounts of the customer.”

In comparison to the total annuity market, Marrion estimates that index annuities represent only a 6% market share. “Its like a fly on the elephants hide,” he says.

Even so, he predicts the steady growth of index annuity sales will continue. The products downside protection with upside potential has strong appeal to people looking for safety and growth opportunity, he explains. Also, he says, a few large insurance companies are planning to enter the market later this year. This should contribute to increased public awareness of, and purchase of, the product, he says.

The new players will target distribution through registered reps and wirehouses, he predicts.


Reproduced from National Underwriter Edition, April 7, 2003. Copyright 2003 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.