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Fixed Index Annuity Sales Jumped 20% in 2nd Quarter

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Index annuity sales in the 2nd quarter 2008 jumped 20% over the 1st quarter and 5.55% over the 2nd quarter 2007, according to the Advantage Index Sales & Market Report.

Sales of the fixed version of the product–fixed index annuities–totaled nearly $7 billion for the quarter, according to, Pleasant Hill, Iowa, publisher of the report. The average FIA premium was $52,460.

Sales of the only registered product–a registered index annuity from Phoenix Companies–came to nearly $7.7 million for the quarter.

For the first half of 2008, the numbers still show increases, but they are not as dramatic.

At $12.7 billion, total FIA sales rose in the first 6 months of 2008 by just 3.23% over the same year-earlier period, the report says. (Total RIAs sales were $14.5 million in the 6 months, but no comparison figures are available for first-half 2007 RIA sales since the product was not yet being sold.)

The top 5 sales leaders for the first half 2008 were Aviva, Allianz Life, American Equity, Midland National Life, and Old Mutual, the report says. By comparison, the top 5 leaders for 2Q were Aviva, Allianz Life, American Equity, Midland National Life and North American Company, together holding nearly 61% market share.

The survey covers results of 58 FIA providers and the one RIA provider. This represents roughly 98% of all active index annuity companies, says AnnuitySpecs President Sheryl Moore.

She attributes the sharp rise in 2Q results to the industry’s introduction of enhanced first-year premium bonuses, which can often run as high as 10%.

The new products have become very popular, particularly in the “10-10 states,” says Moore. So-called 10-10 states require FIAs to have a 10-year surrender charge, starting at 10% in year one and declining to zero after year 10. This design qualifies FIAs for placement on many broker-dealers’ approved products lists, she notes.

The new bonus features use 2 designs, Moore says.

The “recapture” approach vests the FIA’s premium bonus at 100% in year one, provided that the owner keeps the policy to the end of its surrender period, says Moore. If the owner cancels the FIA early, the carrier will “recapture” some of that bonus, she says.

The “vesting” design makes the premium bonus subject to a vesting schedule, she says. “It is vested over time.”

According to the report, 76% of index annuity sales in the 2Q 2008 went into products having a bonus.

Another trend: 30% of new premium went into the fixed interest bucket in 2Q 2008, the report says. This compares to only 17.8% of premium going into the fixed bucket in the 1Q 2008, Moore says.

She attributes the surge in fixed bucket use to customer “desire for more (financial) safety right now.”

Also, she says, “many brokers are advising clients who select high bonus FIAs to allocate their entire first-year premium to the fixed option, some of which have been crediting interest of 4.3% or more. Then, after year one, they plan to reallocate some or all of those funds into the other buckets.”

By far, the dominant surrender period in 2Q 2008 was the 10-year period, with 46.9% of all sales going into 10-year FIAs compared to only 34.2% in 2Q 2007. “This is proof of the growth of the 10-10 FIA design,” says Moore.

Average agent FIA commission was 7.81%, the report says.

The report also covers sales of index life policies. In 2Q 2008, these sales reached $130.6 million–up 6.28% from 1Q 2008 and up 12.73% from 2Q 2007. The top 5 index life sellers in 2Q 2008–Aviva, American General, National Life Group, Aegon Companies, and Allianz–took 65.3% market share.


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