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June 04, 2006 at 04:00 PM
Index annuity sales dropped nearly 3% in the first quarter of 2006 compared to the previous quarter but only 2% when compared to the first quarter of 2005, according to the Advantage Index Product 1st Quarter 2006 Sales Report.
The total sales for the first quarter were just over $6.3 billion, according to the report, which is published by Advantage Compendium, St. Louis, Mo.
Meanwhile, index universal life sales at 20 companies performed strongly, with premiums reaching $72.8 million in the first quarter of 2006. That is nearly 40% of the $186 million in sales the industry reported for all of 2005, says Advantage Compendium.
In other news, index annuity complaints ramped up in 2005 compared to the previous year, says Advantage Compendium. This finding comes from the firm’s new report on annuity complaints closed in 2005 and 2004. The complaint data was drawn from the Consumer Information Source section of the National Association of Insurance Commissioners Website (www.naic.org).
“People have been saying that complaints involving index annuities were greater than those involving variable annuities, so we decided to find out if that was true,” says Jack Marrion, president of Advantage Compendium.
“We learned it was true for 2005. However, it was not the case in 2004.”
Regarding the first quarter sales fall-off, Marrion suggests the reason is twofold: “It’s a combination of the direct effect of bank certificates of deposit starting to offer decent interest rates that compete with index annuities, and the indirect effect of the National Association of Securities Dealers’ Notice 05-50 from August 2005,” which cautions broker-dealer members against selling fixed index annuities.
The quarter’s sales were off even though 59% of the first quarter sales were on products paying 9% to 11+% in commissions, notes Marrion. By comparison, a year ago, only 49% of sales went to products in the 9% to 11+% commission range, according to the report. (See table).
Many carriers promoted their higher-commissioned products in the quarter to keep producer attention on index sales even as bank CD rates were rising, he says. “But that apparently was not enough for the industry to get a quarterly sales increase.”
