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Life Health > Life Insurance

1Q 2008 Index Product Sales Decline From 2007's 4Q

By Linda Koco

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Sales of index annuities and index life insurance fell in the 1st quarter of 2008 compared to the previous quarter, according to figures from AnnuitySpecs.com, Des Moines, Iowa.

IA sales dropped by 10%, while IL sales fell by nearly 25%, says Sheryl Moore, president of AnnuitySpecs.

“But when compared to the 1st quarter of 2007, the picture is more positive,” she says. “For instance, 1st quarter 2008 IA sales are up a little over 0.5% from the same year-earlier period, and 1st quarter IL sales are up nearly 20% from last year.”

The numbers come from the Advantage Index Sales & Market Report 1st Quarter 2008, published by her firm. The report covers results of 58 fixed IA providers, 1 registered IA provider, and 34 index life carriers. Virtually all the life carriers offer index universal life, but 2 also offer index whole life, and one offers only IWL.

Measured in dollars, the 1st quarter 2008 IA sales totaled $5.775 billion, down from the 4th quarter 2007′s $6.435 billion, but up from $5.733 billion a year ago. The 1st quarter 2008 IL sales totaled $122.9 million, down from the 4th quarter 2007′s $162.6 million, but up from $103.4 million a year ago.

The IA sales decline may be reflecting moves made by some major players, says Moore. “For instance, in the 1st quarter, one large carrier discontinued a marketing program and another introduced less favorable caps on credited earnings.”

The decline may also reflect carriers pulling back from their big promotional push in the 4th quarter, she adds.

Another factor could be uncertainty about the economy, she says, noting that people may be “keeping their money in their pockets” for now.

Still, she predicts agents will keep selling IAs–”especially now that several carriers are offering lifetime withdrawal benefits with the product. That should open a lot of doors and opportunities to talk with clients about using their IAs for income.”

But there will need to be more education about IAs for both advisors and consumers, Moore cautions. “There is still a lot of misinformation about the product, even among regulators.”

As for the IL sales decline, Moore believes much of this is because several carriers decided to disallow use of their IL product for equity harvesting transactions (where the client takes out an equity loan on the home and uses the funds to buy an IL policy, and then take withdrawals from the IL for retirement income purposes).

But IL’s future is bright, she contends. “One reason is that more large carriers plan to enter the market this year,” she explains. “And when big players come in, others will follow and distribution will expand. Another reason is that IL, with its downside guarantees and upside potential, will compete well against traditional UL and variable UL.”

The average IL policy face amount was $537,827, down 60%, according to the report. “The lower average face amount suggests IL is being sold to the mid-market,” says Moore.

Much of the report focuses on IA trends. Here is a recap, and Moore’s assessment:

o 17.81% of IA sales went into in the fixed interest bucket in the 1st quarter–up from 11.42% in the previous quarter. Meanwhile, sales going into annual point-to-point products declined.

In general, people are favoring more conservative allocations, and agents are concerned about how to allocate clients’ money in the various IA options, Moore observes. “They don’t want to allocate money to the wrong place and then face regulatory consequences if the clients later complain.” As a result, she says, many agents are now buying (third-party) IA illustration software to help them develop allocations, she says.

o The percentage of IA sales involving a surrender charge period of 10 years is up–to 45.2% in the 1st quarter 2008 compared to 31% a year ago.

This reflects regulators’ growing preference for IAs using the so-called “10-10 rule,” says Moore. (The “rule” says IAs should have no more than a 10-year surrender charge, starting at 10% in year one and declining to zero after year 10).

o Six IAs now offer a 10-year surrender charge period plus a 10% premium bonus, credited from day one, says Moore.

“The carriers are implementing ‘bonus recapture’ provisions, too,” Moore says. These say the insurer will take back (recapture) bonus money if the owner surrenders the IA before the surrender period ends.

o The average IA sales premium among reporting carriers was $57,014, while the carriers’ average fixed annuity premium was $49,457.

o The average agent commission for IA sales was 8% in the 1st quarter.

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