What’s the real annuity story? Accumulation or Income?
January 20, 2015 by Victoria Peterson and Jamie Johnson
A brand new year brings us a good time to reflect on past data from Wink’s Sales & Market Report to see if the hard facts give us any insight as to what the indexed annuity sales focus will be for 2015. Do the trends of indexed annuity sales point to an accumulation or income focus?
Wink reported 2013’s end-of-year sales at $38.7 billion and that set the bar extremely high for record sales. However, it appears that 2014 wasn’t struggling to keep up. In fact, the first three quarters of 2014 surpassed sales in the first three quarters of 2013. At the time this article was written, 4th quarter’s sales are still pending however, on target to easily do over $45 billion in sales.
Since 2008, the low interest rates that plagued the indexed annuity industry and have had many insurance professionals focusing on the income story with their annuity clients. We can agree that a 7.00% rollup on an income rider has been a more convincing value-add for a prospect, than perhaps a 3.00% cap.
Recently, indexed annuity product development has shown that times are changing back towards an accumulation focus. As we wrote about in our November article, carriers have been getting creative and adding new hybrid indices to the indexed crediting methods in their indexed annuities, leading to the recent boom of promoting “uncapped” crediting strategies (disclaimer: uncapped does NOT mean unlimited).
We introduced a hybrid indices category in Wink’s Sales & Market Report in the second quarter of 2014. The category represented 31.0% of indexed annuity sales for the second quarter. In contrast, the hybrid index allocations in third quarter declined slightly to 27.7% of indexed annuity sales.
In second quarter, we had predicted that this accumulation focus of the new hybrid indices may lower the Guaranteed Lifetime Withdrawal Benefit (GLWB) election rate as the attention was taken away from income sales. Surprisingly, this was not case after looking at third quarter 2014 sales. The most recent data we gathered shows that the introduction of hybrid indices, along with the marketing hype, has not resulted in declining GLWB election rates.
The GLWB election and income commencement rates on indexed annuities both increased in spite of the new focus on accumulation. Second quarter brought us a 63.1% GLWB election rate which increased to 71.6% in the third quarter (the equivalent of 64.6% of total indexed annuity sales). Income commencement rate went from second quarter’s mere 5.9% to 6.1%. A noteworthy event as this is the highest income commencement rate since 4th Quarter 2011!
Wink’s CEO, Sheryl Moore noted, “It is surprising to see such a big increase in GLWB elections when there is such a focus on the accumulation story with ‘uncapped strategies.’ Makes you wonder if the focus of third quarter sales was really on accumulation or not!”
Will 2015’s indexed annuity sales bring the accumulation or income sale? Interest rates remain low— hinting at an income focus, but we continue to see product development giving something to talk about on the accumulation side. We know with your client’s unique needs, an indexed annuity can be a solution for either. It’s exciting to see both of these trends increase! February will bring us fourth quarter and year-end 2014 results; stay tuned, the results should be telling!