AnnuitySpecs.com: Indexed Annuities Grow to Represent 45% of US Fixed Annuity Sales in 2011
April 1, 2012 by Fran Matso Lysiak
Best’s News Service – March 28, 2012 12:19 PM
PLEASANT HILL, Iowa – Total sales of indexed annuities in the United States stood at $32.3 billion in 2011, essentially unchanged from 2010 but the percentage of fixed annuities sold that are indexed grew to 45% last year, according to AnnuitySpecs.com, a firm that tracks the data.
Sheryl Moore, president and chief executive officer of Moore Market intelligence, which owns AnnuitySpecs.com, said 2011 represented the fourth consecutive record year for sales. A couple of factors have fueled this trend, Moore said. The collapse of the economy caused Americans “to run to products” that provided protection of their principal. Then low interest rates “caused these savers to flock to products” that could offer greater interest than other fixed-income investments, such as bank certificates of deposit and traditional fixed annuities, she said.
The average rate on a fixed annuity in 2011 was 3.18% while the average rate on a bank CD was 0.51%, said Moore, citing data from BankRate.com. The percentage of fixed annuities that are indexed grew to 45% in 2011, Moore said, noting compared with 2008, just 24.4% of fixed annuities were indexed.
With these retirement savings and income products, an insurer invests most of the customer’s principal in bonds to ensure the policy will generate a small annual return but uses a small portion of the premium to buy options in a stock market index, often the S&P 500. Options that are exercised can result in additional interest credited to a policy, potentially more than an investor might achieve through other fixed-income investments.
Joe Montminy, assistant vice president of annuity research at LIMRA, said the low interest rate environment “has created a difficult market for all annuity products, especially traditional fixed-rate products.” Coupled with market volatility, low interest rates also challenged insurers to cost-effectively manage the guarantees on living benefits, he said.
Sales, or the money people pay into annuities, are reported on statutory statements as annuity considerations but they’re often referred to as premiums, deposits or contributions (Best’s News Service, Aug. 18, 2011). Allianz Life Insurance Company of North America, a unit of Germany’s Allianz SE, remained the indexed annuity sales leader, with 2011 sales of $6.3 billion, and a 19.5% market share, according to AnnuitySpecs.com. In the fourth quarter, its MasterDex X was the No. 1-selling indexed annuity for the 11th-straight quarter.
Capturing second place was Aviva USA, a unit of the U.K.-based Aviva plc, with sales of $4.5 billion. American Equity Investment Life, a unit of American Equity Investment Life Holding Co. (NYSE: AEL) came in at No. 3, with sales of $4.3 billion, while Great American Financial Resources Inc., a member of GAFRI Group, took fourth place, with sales of $1.8 billion.
Rounding out the top five was North American Company for Life and Health Insurance, a member of Sammons Financial Group, with sales of $1.6 billion.
Several companies entered the market last year. When there’s both stock market volatility and low fixed rates, sales of indexed annuities hit record highs, Moore said. Among the new entrants in 2011 were Security Benefit Life Insurance Co., Athene Life Insurance Co., formerly Liberty Life Insurance Co., formerly RBC Insurance; Pacific Life Insurance Co. and Genworth Life and Annuity Insurance Co., Moore said. Other entrants included Principal Life Insurance Co., which previously was in the market, later exited, and is now back in; and Symetra Life Insurance Co., also previously in, later exited and is now back in, Moore said.
Elections on riders known as the guaranteed lifetime withdrawal benefit hit 58% of total sales in the fourth quarter, according to AnnuitySpec.com. Nearly 14% of owners of indexed annuities that chose a GLWB rider are taking guaranteedlifetime income payments under the endorsement today, the firm said.
Moore said insurers that sell indexed annuities also are selling contingent deferred annuities but declined to name names. However, “it’s not something that has gained a lot of traction among indexed writers.”
Last month, a majority subgroup of the National Association of Insurance Commissioners recommended to the NAIC’s “A” Committee that the controversial longevity risk-protection products dubbed contingent deferred annuities are a life insurance product that should be written by life insurers and not property/casualty insurers. These products resemble the guaranteed lifetime withdrawal benefit rider on traditional stock market-linked variable annuities, Felix Schirripa, chairman of the contingent deferred annuity subgroup, told Best’s News Service (Best’s News Service, Feb. 23, 2012).
The subgroup thinks these products “present risks that are akin to those in financial guaranty insurance” but nevertheless a majority believed that property/casualty companies “should not be allowed to write them,” he said.
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)BN-NJ-03-28-2012 1219 ET #