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Why Index Annuity Sales Are Turning Heads

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The close of 2009 was particularly challenging in terms of forecasting index annuity sales.

During the year, some companies had tried to limit competitiveness by making their index annuities less attractive, thereby limiting sales. All indicators suggested that these companies had probably placed more premium than they had cared to. So, predicting which way sales would go was truly a coin toss.

As it turned out, it was a record year for index annuity sales, topping $30.1 billion. That blew away the previous sales record of $27.2 billion (in 2005) by more than 10%.

Talk about enthusiasm–those numbers electrified many interested parties, such as:

Insurance agents. The vast majority of index annuity agents are reporting that their own index annuity sales were up. To what do they attribute this?

For one thing, interest rates on bank certificates of deposit are at a paltry 1.26%. To those who remember how CD rates were at nearly 7% at the turn of the century, the “safety of CDs” is just not worth the payoff in today’s market. Index annuities, on the other hand, are currently offering the potential for 11.5% annual gains and higher. That is a strong value proposition for clients needing or wanting a guarantee, but desiring the ability to outpace inflation.

A second reason is the brush with the market that the agents’ clients experienced in the wake of the 2008 crash. Losing half of a retirement nest egg in stocks, mutual funds, or variable annuities served, for them, as a stunning reminder of just how important principal really is. Perhaps Will Rogers said it best: “I’m more concerned about the return of my money than the return on my money.”

As a result, agents who sold index annuities were most definitely the beneficiaries of recent changes in the interest rate and market environments.

Insurance companies that offer index annuities. Today, there are 44 companies offering these products. Of that group, an astonishing 20% reported sales increases of more than 100% from 2008 to 2009.

So, the past year has been a great opportunity for many insurance companies to increase their share of the index annuity market while limited capital has caused constraints for many of the top marketers in the business. For instance, one company saw its sales ranking go from 29th in the IA market to 9th in a matter of 12 months.

Overall, this atmosphere translates into diversity in the mix of top-selling products and increased attention for some companies that have not been historically aggressive in the market. That is a good story for those offering index annuities.

Insurance companies that do not offer index annuities. These insurers are also excited about the increase in IA sales. Why? The results have spurred these companies to reflect on their own strategies compared to index annuities. For instance, they may be asking: What do IAs offer that is so attractive to consumers? Could we offset our declines in variable annuity sales by offering an index annuity?

For some of the big mutual companies, index annuities are no longer the naughty step-child product the companies have warned their distribution about in the past. The products have become something that these firms can offer to distribution that will open up an opportunity to save face with clients the next time the market collapses.

Some are thinking that they could use these products as a way to create an opportunity to retain sales.

Consumers. They definitely benefited from their IA holdings in 2009. Take me, for instance. I am not only an IA market professional, I am also a client. I bought my first IA at age 29 and have bought several since. All of my annual statements this year indicated I received nothing but fixed gains; no appreciation due to market changes.

Many people would expect that consumers would be upset upon realizing they had earned zero interest in a one-year period on any interest-sensitive product. But when comparing the zero on index annuities to the 40%+ losses of equities in 2009, that zero looks appealing.

Bottom line: Consumers are often not willing to stomach the losses associated with investment products. Index annuities are a retirement income vehicle that can overcome this objection, while still providing the potential to outpace traditional fixed money instruments.

Sheryl Moore is president and chief executive officer of and, an index product resource in Des Moines, Iowa. Her e-mail address is [email protected].


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