At $27.3 billion, index annuity sales in 2005 set a record for the 11th consecutive year. Index universal life (IUL) premiums increased, as well–to $186 million, nearly double the volume two years ago.
In the fourth quarter 2005, however, sales were uneven. Index annuity sales for the quarter were $6.5 billion, down 6% from the third quarter 2005 and down 4% from the same year-earlier period. But IUL premium hit $66 million in the fourth quarter, nearly double IUL premiums in the same year-earlier period.
These results were compiled from the 34th index product sales survey conducted by Advantage Compendium, Ltd., St. Louis. They represent 99% of active index product sales.
Although the year set records, there were challenges in the autumn for index annuities. Sales dropped $418 million from the previous quarter, and if wasn’t for $80 million in sales from new entrants to the index annuity marketplace, the drop would have been greater.
The easy and wrong answer would be to attribute the entire drop in index annuity sales to the effects of the National Association of Securities Dealers Notice to Members 05-50, issued last August. The NASD notice did negatively impact sales, but other factors had equal or greater force.
The big story was competitive pressures from other sources, specifically from interest rates of bank certificates of deposit. The average short-term CD rate was 3.22% in the fourth quarter, up by over 0.25% from the third quarter and up almost 1.5% from the fourth quarter of 2004. These more attractive bank CD rates were the major factor for weak index annuity sales. (Significantly, the amount of money in bank savings instruments rose $169 billion last year, according to the Federal Reserve Board.)
Another contributor to the quarter’s decline in index annuity sales was the fact that one carrier yanked its top selling index annuities off the market at the end of the third quarter. The result was that this carrier’s fourth quarter sales were down $143 million, representing one-third of the industry’s $418 million fourth quarter drop.