American Equity Exec Optimistic About Annuity Market

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.