3Q Index Annuity Sales Inch Ahead, Index Life Sales Grow Apace

Index annuity sales for the 3rd quarter of 2006 were $6.5 billion–a bit higher than 2nd quarter sales, which in turn were up slightly from 1st quarter sales.

The sales leader was Allianz Life, reporting nearly $1.7 billion in total sales, followed by AmerUs Annuity Group at $637 million. The market shares of the 2 carriers were 26.14% and 9.8%, respectively, according to the Advantage Index Product Sales Report for the 3rd quarter of 2006.

However, by all estimates, 2006 index annuity sales will be lower than those of 2005 and thus end the run of 10 straight years of new record calendar year sales.

Why did index annuity sales falter?

The overwhelming reason was higher interest rates on bank certificates of deposit. Experience has shown that index annuity sales will dip or flatline when bank rates rise, and sales will grow as bank CD rates fall. (The same relationship may also be observed in the fixed rate annuity side.)

Specific to 2006, consumers could easily find bank CDs that were yielding 5% or better. That lowered the attraction of an index annuity that could possibly credit 0% index-linked interest in a given year.

The National Association of Securities Dealers’ use of intimidation with its broker-dealer members concerning sale of index annuities has played a part in dampening IA sales, of course. But this is a smaller factor, as most IA carriers were substantially unaffected by the NASD’s actions.

Did a stronger stock market in 2006 cause money to be placed in investments instead of index annuities? No, it does not appear that the stock market was a reason for flat index annuity sales–because index annuities are viewed as a savings vehicle and not as an investment instrument.