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.