Commissions paid on direct business written by insurers increased by 7% in 2005 over 2004 for the top 50 companies as measured by a total of all lines of business.
Total commissions incurred on direct business climbed to $23.8 billion in 2005, up from $22.3 billion in 2004, according to data generated by National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data L.L.C.
For those top 50 companies, commissions paid on ordinary life business rose 13% to $7.8 billion in 2005, up from $6.9 billion in 2004.
For those same companies, commissions incurred on ordinary annuity business grew 2% to $8.7 billion in 2005 compared with $8.5 billion in 2004.
An examination of commissions incurred as measured by first-year business and renewal business did not suggest that one was more likely to be the driver of the increases than the other. In both categories, there was an 11% increase in commissions paid in 2005 over 2004. For first-year commissions, the total increased to $11.2 billion in 2005 compared with $10.1 billion in 2004. For renewal business, the increase was on a smaller base, growing to $7.9 billion in 2005 compared with $7.1 billion in 2004.
Companies in the top 50 say that for the most part, the increase in commissions was due to an increase in premiums.
Such was the case at American Skandia, a unit of Prudential Financial, Newark, N.J., according to spokesperson Laurita Warner. The increase at American Skandia was due to higher sales of annuities, and in particular, annuities with a lifetime living benefit feature, she says. There was no change to the commission structure, Warner confirms.
American Skandia’s total commissions incurred grew by $90.1 million in 2005 over 2004, in part driven by a $28.3 million increase in annuity commissions.
Changes in life insurance commissions at John Hancock were due both to “sales growth in our companies and a post-merger harmonization of commission classification for NAIC reporting,” says Brian Carmichael, a John Hancock spokesperson. The increase in annuity commissions at the company, based in Boston, he continues, was due to a large increase in 2005 sales.
Overall growth in commissions at Allstate Life Insurance Company was due to the merger of its Glenbrook Life & Annuity unit into Allstate on Jan. 1, 2005, says Jennifer Topolewski, a spokesperson for the Northbrook, Ill., company.
Allstate’s Lincoln Benefit Life unit witnessed increases in life commissions because of the rise in the sale of interest-sensitive life, Topolewski continues. Premium increased by $113 million to $521 million in 2005 compared with $408 million in 2004, she explains. A big part of that premium reflects larger first-year commissions, she adds. A total of $59 million in commissions was paid in 2005, reflecting a $49 million increase in sales associated with interest-sensitive life. Overall, she continues, commissions for 2005 were $48.76 million, with the difference reflecting a decline in commissions from run-off accident and health business as well as lower variable annuity sales.
AmerUs Life Insurance Company, a unit of AmerUs Group Company, Des Moines, Iowa, reported an 11% decline in sales of individual life insurance, corresponding to a 13% decline in life insurance premiums, according to Martin Ketelaar, a spokesperson for AmerUS Group.
The increase in annuity commissions corresponds to the increase in annuity premiums, he continues. Annuity premiums were $1.5 billion in 2005 compared with $823 million in 2004, Ketelaar adds.
AIG Annuity Insurance Company, a unit of American International Group, New York, which has a premium block that primarily consists of fixed annuities, had $206.5 million in premium compared with $796.3 million in 2004, according to company filings referred to by Joe Norton, a spokesperson for AIG. The decline was due to reduced overall production, according to the filing.
During 2005, the interest yield curve flattened and, as a result, competing bank products such as certificates of deposit and other money market instruments with shorter durations than AIG Annuity’s individual fixed annuity products became more attractive, according to the filing.
Commissions totaled $323 million in 2005 compared with $539.2 million in 2004, the filing states, due to the decline in sales. Commissions represented 5.45% of fixed annuity sales in 2005 and 5.82% in 2004.