ANNUITY
As Others Dive, Indexed Annuities Cruise Strong I ndustry leaders say the public will continue to be enamored with indexed annuities as the desire for security trumps the attraction of chasing after interest rates. By Linda Koco
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s the consumer romance with indexed annuities likely to continue next year or might it start to fizzle as consumers seek other eligible prospects? Three leading annuity experts gave the thumbs up to “continue.” They had reasons. First, here’s a refresher on the record sales the product line has seen in recent times. In every quarter since second quarter 2011, fixed indexed annuities sold over $8 billion per quarter, according to statistics from LIMRA. In fourth quarter 2012 alone, sales reached $8.5 billion, up from $8.1 billion back in second quarter 2011. Meanwhile, all other types of fixed annuities – book value, market value adjusted, single-premium immediate and structured – sold only $9.2 billion in fourth quarter 2012, down from their seven-month high of $13.2 billion in second quarter 2011, according to LIMRA figures. And variable annuities sold just $35 billion in fourth quarter 2012, down from their seven-month high of $40.6 billion in second quarter 2011, the LIMRA data shows. Quarterly variable annuity sales are still much higher than indexed, but the indexed annuity trajectory over the past seven quarters has meant that indexed sales have helped the fixed side of the business close the fixed/variable gap. Comparatively speaking, then, indexed product sales have been on a tear.
Why is That?
Why have the indexed products sold so well while other fixed annuities and variable annuities have not, and where it is all going? One reason is that fixed interest rates have been at historical all-time lows, said 40
InsuranceNewsNet Magazine » June 2013
Sheryl Moore, president and chief executive officer of Moore Market Intelligence. When rates are low, indexed annuities tend to do better than traditional fixed annuities, she noted. Another reason is consumer demand for safe money products. Many consumers are uncomfortable with the fluctuations in the market, she explained, noting that this point comes up repeatedly in the phone calls her firm receives from consumers. “People often ask whether it is true that indexed products will not have any losses due to the market,” Moore noted. When she says it’s true, they respond that this is all they wanted to know. She said she does inquire whether they are looking for growth, and mentions that 1 percent growth might be possible in today’s market, but most callers say they are not interested in that. “What concerns them most is that zero percent guarantee (in the indexed annuity).
It’s a strong value proposition for someone who is looking to save for retirement.” Another driver for indexed sales is the volatility and uncertainty in the markets, Moore said. Any time markets decline, variable annuity sales drop, and any time fixed interest rates go up, fixed annuity sales go up, she pointed out. But in 2012, the market conditions were different – markets were volatile and interest rates very low. Consumers responded by downshifting interest in either variable or traditional fixed annuity sales. In fact, “for every one dollar in (traditional) fixed annuity sales that came in last year, there was almost one dollar in indexed annuity sales coming in,” Moore said. The trend has become so pronounced that her firm is now projecting that by year-end 2013, indexed annuity sales will surpass (traditional) fixed annuity sales. Indexed annuity sales won’t surpass variable annuity sales, however. But Moore