Fixed Index Annuity Sales Hit New Record Of $11.7 Billion in 2002

Still, in 2002, products with surrender periods of 10 years or longer continued to account for the lions share of sales. In 2002, these policies drew 87% of sales, according to the survey.

Also, index annuities with agent commissions of 9% or more represented 85% of sales in 2002, Marrion says.

He reports that two-thirds of the 30 companies participating in the survey attributed over half their 2002 sales to 1035 policy exchanges. That is, consumers were exchanging older annuities for a new index annuity.

"These companies said more of the old money came from fixed annuities than from variable annuities," Marrion adds.

That means nearly half of 2002s sales represents "new money" coming into the industry from someplace else, he points out. By comparison, two years ago, fully 93% of index annuity sales came from new money sources, he says.

The source of the new money is unknown, according to Marrion. "The companies say they cant document where these checks are coming from. However, Ive heard, anecdotally, that the companies are seeing only a few checks coming in from the mutual fund and brokerage accounts of the customer."

In comparison to the total annuity market, Marrion estimates that index annuities represent only a 6% market share. "Its like a fly on the elephants hide," he says.

Even so, he predicts the steady growth of index annuity sales will continue. The products downside protection with upside potential has strong appeal to people looking for safety and growth opportunity, he explains. Also, he says, a few large insurance companies are planning to enter the market later this year. This should contribute to increased public awareness of, and purchase of, the product, he says.

The new players will target distribution through registered reps and wirehouses, he predicts.

Reproduced from National Underwriter Edition, April 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.