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Key moments in the evolution of fixed indexed annuities

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The fixed indexed annuity (FIA) just celebrated its 20-year anniversary. Introduced in 1995, FIAs have lived up to their promise: to protect premium and credit interest from market risk and ensuring the safety of the invested principal.            

Have you ever wondered how FIAs grew to be such an important investment option in such a relatively short period of time? In an article that appeared in NAFA Annuity Outlook, author Jack Marrion, president of Advantage Compendium Ltd., a St. Louis-based firm that provides research and consulting services to financial organizations, outlines some key developments in the evolution of the fixed indexed annuity. Here are some highlights:

1995: With the assistance of Genesis Financial of Canada, in February 1995, Keyport Life introduced the first equity-linked indexed annuity, the KeyIndex. The first indexed annuity was purchased on February 15 by a 60-year-old Massachusetts man for a premium of $21,000. The account value at the end of a five-year term was $51,779.

1996: More and more carriers began to offer indexed annuities, with 20 carriers offing FIAs by the end of 1996. More than $1.5 billion in FIA sales were reported for the year.

1997: The Securities and Exchange Commission (SEC) began grappling with how to regulate indexed annuities—whether to classify them as securities or not. 1997 ended with more than $3 billion in FIA sales and 37 carriers offering this type of annuity.

1998: The SEC decided that FIAs were not to be considered or regulated as securities. Sales climbed to $4.2 billion for the year. By the end of 1998, about half of all FIA sales were in products with surrender periods of 10 years or more, and there were 20 different crediting methods in place.

1999: For the first time, in 1999, the agent channel sold more than 90 percent of all FIAs.

2000: The millennium bear market started, the longest bear market since the Great Depression. Total FIA sales for this year amounted to $5.25 billion.

2001: The courts ruled that annuities are not securities in Beverly S. Malone v. Addison Insurance Marketing, Inc., [Civil Action No. 3:01-CV-259(H)].

2002: The bear market continued while FIA sales continued to grow. FIA year-end sales exceeded $11.7 billion in 2002, but the number of carriers offering FIAs fell to 29.

2003: The National Association of Insurance Commissioners (NAIC) adopted the Senior Protection in Annuity Transaction Model Act to “…promote sales practices in the life insurance industry that result in recommendations to consumers aged sixty-five years or older on transactions involving annuity products that meet the insurance needs and financial objectives of senior consumers.” The year ended with more than $14 billion in sales.

2004: More articles appeared in the general press warning consumers about FIAs, primarily in respect to a lack of liquidity. A few state securities regulators suggested that FIAs should be treated as securities. The monthly cap crediting method was introduced. Sales for the year exploded to more than $23 billion, drawing attention from securities competitors.

2005: The year ended with more than $27.3 billion in sales.

2006: In March, the NAIC proposed the new Suitability in Annuity Transactions Model Regulation designed to cover all annuity consumers — not just those older than age 65. In June, American National Insurance Company becomes the first indexed annuity carrier to offer a guaranteed lifetime withdrawal benefit (GLWB), and is quickly followed by the AmerUs Group (now Athene). The year ended with FIA sales exceeding $25.3 billion.

2007: Annual FIA sales amounted to more than $25.1 billion.

2008: The SEC began a comment period that would eventually create Rule 151A, classifying index annuities as securities. By the end of the year, 82 percent of comments were opposed to making index annuities securities.

2009: The SEC ruled that all index annuities are indeed securities and must be treated as such beginning in January 2011. The insurance industry realized this might affect FIA sales and decided to take action.

2010: Congress declared the Dodd-Frank Wall Street Reform and Consumer Protection Act preserved index annuities as fixed products and not securities. The act was signed by President Obama on July 21.

2011: Sales of FIAs for the year reached $33 billion.

2012: Low bond yields continue to negatively impact caps. In response, Security Benefit introduces the first annuity using a managed volatility index.

2013: The year ended with more than $38.7 billion in FIA sales.

2014: The market share of banks and broker-dealers in 2014 was nearly 30 percent — the highest level since 1997. The year ended with FIA sales levels at approximately $47 billion.

2015: But FIA sales have been growing steadily in 2015 as they have been over the past 20 years. Since 1995, roughly $400 billion in fixed index annuities have been purchased by millions of consumers, who have been enjoying the benefits of guaranteed income without risking the loss of their principal. 


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