Fixed index annuity sales were flat in the 2nd quarter of 2006 compared to the 1st quarter, according to a new report from Advantage Compendium, St.Louis, Mo.
When compared with the 2nd quarter in 2005, the sales were actually off by 14%.
Sales reached over $6.3 billion in each of the first two quarters of this year, the report indicates. By comparison, in the 2nd quarter of 2005, they were at $7.4 billion.
When comparing first half results, sales reached over $12.7 billion in 2006, down 8% from the first half of 2005, when the total was $13.8 billion.
Two key factors account for the flattening results, says Jack Marrion, president of Advantage Compendium.
One is the continuing negative publicity about index annuities stemming from the National Association of Securities Dealers’ Notice to Members 05-50, issued in August last year. That notice detailed NASD’s concerns about marketing, supervision, disclosure and investor protection issues that registered broker-dealer firms may confront when selling non-registered index annuities.
The notice has put a drag on sales, Marrion says.
The sales report shows a related finding, he says. It shows that broker-dealers accounted for only 0.8% of 2nd quarter index annuity sales–down 66% from the 2.4% market share that they had in the 2nd quarter a year earlier.
Given that index annuity sales in the B-D channel had previously been increasing incrementally, “that is a significant decline,” says Marrion. He says it is further indication that Notice 05-50 is having a negative effect on fixed index annuity sales–i.e., fewer broker-dealers are selling the product.
The other factor impacting 2nd quarter fixed index annuity sales is the general interest rate environment, says Marrion. “With pure interest rates at 5% or better, some consumers are deciding to put their money in bank certificates of deposit rather than in annuities.”
What is not a factor in the flattening of sales is the directionless stock market, he adds. “If we had a raging bull market, that would definitely impact index annuity sales, because people like to buy equities when the market is going up. But when the market is flat as it has been, it’s not a factor influencing fixed index annuity sales.”
The annuity report covered sales of 55 fixed index annuity providers and 21 indexed life insurance companies. Results of a few companies were estimated, but Marrion says 95% of all active index product companies, representing 99% of production, are covered.
For the first half, the top carriers were Allianz, ING, AmerUs Annuity Group, American Equity and Old Mutual.
Ranked by surrender charge periods, 50% of the sales went to products with surrender periods of 10+ years. That is down from the 3rd quarter of 2005, when 60% of sales went to products in that category.
This reflects the fact that the large majority of index annuity sales were in policies paying a bonus interest rate, suggests Marrion. “The products offering bonus rates tend to use longer surrender charge periods,” he explains.
In 2003 and 2004, there were fewer sales in the 10+ year surrender charge category, he recalls. “But that was a time when interest rates were very low, so carriers were cutting commissions and they trimmed surrender charges accordingly.”
In the 2nd quarter of 2006, the average agent commission was 8.08%, only slightly lower than in the previous quarter, when the average was 8.26%.
In general, Marrion says, fixed index annuities are now paying commissions in the 9%-10% range, with most at 9%. The 2nd quarter report shows that only a few sales (roughly 2% of the total) went to fixed index annuities paying 11% or higher.
The average fixed index annuity buyer is age 62.5, and the average fixed index annuity premium is $47,662, says Marrion. By comparison, the average premium for traditional fixed annuities is $36,418, he says.
Where life insurance is concerned, the Advantage report shows 2nd quarter 2006 index life insurance sales reached $85.5 million in annualized premium, up from $74.7 million in the first quarter of the year.