Index annuity sales hit yet another record in the 2nd quarter of 2004, reaching nearly $5.3 billion, according to Advantage Compendium, a St. Louis, Mo., index annuity tracking and analysis service.
That is up 26% from the 1st quarter 2004 sales and up 42% from the 2nd quarter one year ago, says Jack Marrion, Advantage Compendium president.
The 2nd quarter figure represents results from 35 companies, or an estimated 99% of industry sales. Results of 3 carriers were estimated.
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Total sales for the first half of 2004 reached over $9.4 billion, says Marrion, predicting that the year-end 2004 figure will likely reach $20 billion.
Why the continued rise in IA sales? Consumers and their advisors are viewing the products as a better alternative than traditional fixed annuities and variable annuities, contends Marrion.
When compared to traditional FAs, the IAs interest rate potential looks better, he says. The appeal is the floor rate guarantee plus the possibility of earning a “significantly higher” return over the next few years, he adds.
“By contrast, the 5-year traditional FAs are, at best, paying rates that are competitive with 5-year CDs, and some are paying slightly less.” And although traditional FAs currently are offering interest rates that are 1%-2% higher than one-year CD rates, Marrion says consumers have been telling him they do not see that as a strong advantage”because they think one-year CD rates will rise in the coming year.”