Index Annuity Sales In 1st Quarter Were $3.2 Billion

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Index annuity sales in the first quarter of 2003 totaled $3.29 billion, reports The Advantage Group, a St. Louis, Mo., index annuity tracking service.

“This is down slightly–by 4%–from fourth quarter 2002, when total sales hit a quarterly record of slightly over $3.4 billion,” says Jack Marrion, Advantage Group president.

However, the fourth quarter number was up substantially–by 52%–over the same period a year earlier, he says. In the first quarter 2002, total sales were $2.168 billion.

First quarter 2003 results reflect index annuity sales at 30 insurers currently active in the market. Marrion estimates these companies represent 97% of all active index product companies and 98% of total sales for the period. (Note: Results were estimated for one carrier that did not participate in the survey.)

Most index annuities are fixed annuity contracts that link their internal excess interest growth to performance of one or more financial indexes, such as the S&P 500. A few are registered products.

Some index annuities also include a fixed interest account, says Marrion. The fixed accounts have been popular in recent quarters, but this has begun to change, he says.

In first quarter 2003, for example, the fixed account buckets drew just one-third of total index annuity premium deposits, Marrion says. By contrast, in fourth quarter 2002, these accounts drew about 40% of total premium deposits, and in third quarter 2002, they attracted nearly 45% of total deposits.

Marrion sees the decrease in fixed interest deposits as a “good sign,” indicating that more new buyers want exposure to the equity linking that index annuities make possible.

If that is so, why did sales take a dip from the previous quarter? Marrion suggests one reason might be that the index annuity story may be a little harder to tell this year than last, due to the prolonged volatility in the stock market and continuing low interest rate environment.

“Agents say a lot of people are sitting on their money market accounts, waiting for the market to start a comeback,” Marrion says.

Also, commission levels were cut on a number of products, says Marrion. He suggests that “the index annuity story” may have been lost or overlooked as producers adjusted to the lower commissions they were able to obtain on new sales.

In first quarter 2003, for example, only 9% of sales earned street level commissions of 11% or more. In the same period last year, the 11%+ commission range accounted for 33% of total index annuity sales.

Meanwhile, commissions in the 9% to 10% range grew in first quarter 2003 to 55% of total sales, compared to 47% in the year earlier first quarter.

The lower commission trend will continue on into the middle of this year, Marrion says, noting that a number of insurers are planning to cut commissions even more as part of companywide expense-cutting campaigns.

Another factor for the slight drop in sales is that fewer companies are in the market than in previous years.

From the mid-1990s to today, says Marrion, 36 companies have left the market. However, 30 companies are in the market, he stresses, and several new players plan to enter later this year.

Other first quarter 2003 product trends: The average index annuity premium was $37,235 (at 60% of the responding companies). Qualified sales accounted for 51% of total sales (at 72% of the responding companies). The large majority of sales involved products with long surrender periods (69% had surrender period of over 10 years, and 18% had 10-year surrender periods).

Index annuities offering first-year interest rate bonuses of 5% to 10% represented 55% of total sales, up from 51% in fourth quarter 2002 and 40% in first quarter 2002.

Allianz Life was by far the top seller for the quarter, pulling in over $1.1 billion in sales, representing 34.46% of the market.

Other leaders in the top five were, in declining order: AmerUs Group, American Equity, Midland National Life, and North American.


Reproduced from National Underwriter Edition, June 16, 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.