03 Index Annuity Sales

Hit Record $14 Billion

BY

Fixed index annuity sales totaled more than $14 billion in 2003, says Jack Marrion, president of Advantage Compendium, St. Louis, Mo. “Thats a 20% increase over 2002, when sales reached $11.7 billion, and it is a new record for the index annuity industry.” (See Chart I.)

“Sales in 2003 were roughly equal to total sales for the years 1995 through 1999,” he points out.

Allianz Life was the sales leader for the year, bringing in more than $4.3 billion (see Chart II).

The figures are based on a survey of 33 fixed index annuity insurers. Three did not participate so their results were estimated, says Marrion, adding “the results reflect experience of 95% of active index insurers, and over 99% of sales.”

The 2003 sales total would have been even higher if index carriers had not reshuffled their product lines in mid-year, Marrion says. Many insurers pulled products that offered minimum guaranteed interest rates at 3% of 90% of premium, he explains, and later introduced new versions having lower minimums, ranging from 1.5% of 90% of premium to 2% of 100% of premium.

Today, the majority of fixed index annuities still offer a 3% minimum guarantee, Marrion says. “However, the top sellers for 2003 were products having the new lower rates,” he adds.

These newer products garnered sales by offering higher caps on earnings and/or higher participation rates, and many offered a first-year bonus interest rate, as well, he points out.

In general, Marrion adds, index annuities sold well in the year because their upside potential looked very attractive in comparison to traditional fixed annuities, which credited very low interest throughout the year. This impression was helped along by the fact that the stock market was rising, he says. Since index annuities link their credited interest rate to increases in a market index, a risking market is “an ideal environment in which to buy index annuities,” Marrion says.

Fixed index annuities should see even stronger sales in 2004, he predicts. “Their interest rates are beating the 1%-2% interest being offered by bank certificates of deposit. And the stock market is getting scary again. The fixed index annuitys protection of principal plus potential for higher interest is a great story to tell in this market.”

In addition, Charles Schwab has just entered the market through an arrangement with an established index carrier, he says. That arrangement could bring in substantial new sales, he says.

Finally, the products keep posting results that draw attention, he says. “For example, the average interest paid into the products in 2003 ranged from 6% to 11%, with some going as high as 30%.”

The Advantage report also includes these results for the 4th quarter of 2003: Quarterly sales rose 12% from the 3rd quarter, to reach $3.738 billion, a new quarterly record. Products paying agent commissions of 11% or more dropped to 4% of sales, down from 42% in the 4th quarter of 2002. Products with long surrender periods (over 10 years) also droppedto 52% from nearly 72% in the 4th quarter of 2002. The average index annuity premium for the period was $40,772greater than the $38,873 average traditional fixed annuity premium reported by the companies.

At year-end, the industry had over $50 billion of assets in force, Marrion says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, March 25, 2004. Copyright 2004 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.