In spite of the market turmoil and questions about regulation of indexed annuities, this is a good time to sell fixed annuity products, according to Wendy Carlson.
Carlson, president of American Equity Investment Life Holding Company, West Des Moines, Iowa, delivered that assessment here earlier this week at a conference organized by the New York Society of Securities Analysts, New York.
American Equity sells indexed annuities along with other indexed products and other types of annuities.
The company is looking at a number of options in the wake of the effort by the U.S. Securities and Exchange Commission to create Rule 151A, Carlson said.
Rule 151A would classify most indexed annuities as securities and put them under the jurisdiction of the SEC. The rule would not change the tax-deferred nature of indexed annuities, but it would require the agents who sell the annuities to be licensed to sell securities.
American Equity is part of the Coalition for Indexed Products, Washington, a group that has filed suit over 151A. A court recently agreed to hear the case on an expedited basis, and American Equity is hoping that the review will be completed by the third quarter, Carlson said.
American Equity sells through 45,000 independent insurance agents. Many are registered, but many are not, Carlson said.
But the new rule is not scheduled to take effect until Jan. 1, 2011, and the coalition still could win the lawsuit, Carlson said.
American Equity is considering strategies such as focusing on sales of existing registered index products and promoting a number of different types of fixed annuities, Carlson said.
The SEC began looking at indexed annuities partly because of reports of problems with some indexed product sales efforts.
American Equity has been very careful to screen potential purchasers of indexed annuities, Carlson reported. She said the company examines how big an indexed annuity will be in relation to the purchaser’s total assets and liquidity. American Equity looks at “every single sale in every single state,” whether or not there are state suitability review requirements, and, if there is any question regarding the suitability of the sale, the application is declined, or the size of the annuity actually sold is reduced to an appropriate amount, Carlson said.
American Equity has declined “hundreds of applications totaling millions of dollars,” Carlson said.
Carlson said she is optimistic about 2009 annuity sales.
Turbulent markets and low bank certificate-of-deposit rates should be conducive to growth in annuity deposits, and American Equity could surpass 2005, when it took in $2.9 billion, Carlson said.
As of Sept. 30, 2008, Carlson said, the actual annualized surrender rate of 3.5% was lower than the expected surrender rate of 6.53%, while actual annualized withdrawals of 3.33% were slightly higher than the expected withdrawal rate of 3.01%.
Carlson said the cost of selling an annuity is about 10% to 11% of the premium, with 3% to 9% going to the writing agent, 1% to 2% to a national marketing organization, 1% to incentive programs and 0.42% to cover new-issue costs.