Given the pounding that fixed index annuities have taken from regulators over the past 2 years, some observers have been predicting that FIA sales would plummet.
But they haven’t plummeted, according to the year-end sales report from AnnuitySpecs.com, Des Moines, Iowa.
Sales for the 4th quarter were down slightly–less than 1%–compared to the previous quarter, says Sheryl Moore, president of the index product tracking service. But when compared to the 4th quarter in 2006, FIA sales were up by 8%.
For the full year, 2007 FIA reached nearly $25.2 billion, versus just over $25.3 billion in 2006.
That nearly flat performance is “amazing” in view of the pressures the industry has been facing, maintains Moore. These pressures include the ongoing regulatory scrutiny of index annuity sales, she says, plus the increased volatility in the options market. (Volatility forces up the cost of options purchased by carriers to support their FIAs; in response, FIA insurers often raise their FIA participation rates and asset fees and/or impose crediting caps in their FIAs).
She says sales held level due to steps that several carriers took to respond to market conditions. Some carriers revamped product lines, added premium bonuses (78% of sales involved bonus products), and debuted other consumer-friendly features, for instance. Some added new features–for example, Allianz, the lead seller, started offering a guaranteed lifetime withdrawal benefit in 2007. Some refreshed their marketing programs. Some increased the number of crediting options they offer.
In the 4th quarter, she adds, “any incentives that were added were consumer-oriented, not producer-oriented.”
The sales held up even though average commissions fell to 7.74% in the 4th quarter, down form a little over 8% in the previous 3 quarters. (The highest average commission shown in the firm’s database was 8.41%, in the 3rd quarter of 2005.)
Over 48% of sales in the 4th quarter were in the 7%-8% commission range, she adds. A year ago, such products accounted for a smaller portion–roughly 33%–of sales. (In the 4th quarter of year 2000, they accounted for fewer than 10% of sales.)
The average commission dropped in part because carriers adjusted compensation to help offset the higher options prices they had to pay, says Moore.
Another reason, she says, is that the industry sold more 10-year surrender charge products than previously, and 10-year products have lower commissions than FIAs with longer surrender charge periods.
In 2007, the report shows, 42.6% of FIA sales were in 10-year products, and roughly 17% were in products having shorter periods. By comparison, in 2006, 10-year products accounted for just over 30% of sales, and those with shorter periods accounted for about 21% of sales.
The move toward greater sales of 10-year FIAs was propelled by growing acceptance of the informal “10-10 rule” for regulating index annuities, says Moore.
Rule 10-10 is a guideline used by some regulators in evaluating index annuities. It says such annuities should have a 10-year surrender charge, starting at 10% in year one and declining to zero after year 10. In 2007, many broker-dealers decided the rule is a good measure of consumer friendliness, says Moore, so they started using 10-10, too, to screen index annuities for their approved products lists.
As a result, 10-10 became a dominant factor in the 2007 market, Moore indicates. Hence, more carriers rolled out, and sold, “10-10 friendly” index annuities.
“It’s not just agent commissions that this trend has affected,” Moore says. “Another consequence is that many 10-10 index annuities are identical to one another, or nearly so, meaning that there is less variety in products than previously.”
The 10-10 products aren’t necessarily top sellers, though. For instance, of the top-10 FIAs sold in 2007, only two were 10-year products, says Moore.
But, she adds, 42.2% of sales in 2007 still went to products with longer surrender periods (11% and up), so the longer surrender charge products are still in play.
The year-end report covered results from 57 FIA providers and one registered index annuity (RIA) carrier, or roughly 98% of the active market. The top 3 sellers–Allianz, Aviva and American Equity–produced nearly 50% of the sales.
The RIA carrier is Phoenix Life. It introduced its first RIA in 2007, with sales producing $2 million in the 4th quarter. Only one other RIA is being sold today, an Allstate product sold through banks, Moore says. A third RIA, from ING, is no longer on the market, she says.
The year-end report also includes sales results from 33 index life companies. For 2007, these sales totaled $512.2 million in target premium, up over 39% from 2006.