Index annuity sales declined 7% in the third quarter of 2005 compared to the second quarter of 2005, says Advantage Compendium Ltd., St. Louis, Mo.
Total sales were nearly $6.9 billion, down from $7.4 billion in 2Q, according to the firm's 3Q sales report, which covers an estimated 98% of the market.
Five carriers took 67% of 3Q market share. The top three sales leaders took 51% of the market.
Allianz Life, at nearly $2.2 billion, led the pack with a 31.49% share, says Jack Marrion, president of Advantage Compendium. American Equity, at nearly $679 million, came in second, and Old Mutual, at just over $670 million, came in third.
The three insurers held the same rankings in the previous two quarters.
The results are based on sales at 44 reporting companies.
Though sales fell from the previous quarter, Marrion predicts year-end industry sales will reach $30 billion. Year-to-date sales total over $20.7 billion, he notes. Also, the 3Q sales are down by only 2% over the previous 3Q total, and several major carriers, including some established variable annuity insurers, are planning market entries, so index annuity promotion will rise.
According to the report, index annuities that calculate interest credits via an annual reset methodology with a monthly cap on gains were the top 3Q sellers.
The dominant surrender charge period for 3Q sales was 10 years and up, representing 37.76% of sales. Products with a 10-year period drew 14%; a 7-year period, 12%; and a 9-year period, nearly 9%.
The report shows 22% of the products as annuitized (and therefore out of their surrender charge period).
Shorter surrender periods will probably be the future trend, predicts Marrion. Four states actually require a 10-year maximum, he notes. Also, pressure from the National Association of Securities Dealers and senior suitability advocates is being applied to reduce surrender periods.
As for commissions, the large majority (63%) of 3Q index annuity sales were in products paying in the 9%-10% range. That is up from 57% in 3Q 2004, the report says.
Products paying in the 7%-8% range took 20% of 3Q sales in 2005, compared to 27% in 3Q 2004.
Going forward, the products will trend to lower commissions, Marrion predicts, citing "public indignation over high commissions" as the key reason. Already, he says, "some broker-dealers are setting maximums–such as 7%–on the commission they will pay on index annuity sales."
The average agent commission in 3Q was 8.44%, the report says.
Regarding sales at broker-dealers, the report notes that B-D market share rose to 0.9% in 3Q 2005, up from 0.3% in 3Q 2004. Meanwhile, agency sales fell to 91.9% from 93.8%.
Indexed universal life insurance premiums, at $37.2 million in the 3Q, were down 13% from 2Q. However, 15 companies were in the market, up from 11 in January, according to Marrion, and "four more carriers are expected to enter the IUL market by year-end."
