Index Products Saw Another Record Year In 2005

However, the hoopla about how variable annuities with secondary guarantees are taking business away from index annuities is not bearing out. Our research on sources of funding for index annuities indicates that VAs with secondary guarantees have had no effect on index annuity sales.

All this is not to say the NASD's moves did not impact sales. Carriers deriving most of their sales from producers who also held a securities registration generally took a hit as the broker-dealers for these reps tried to determine how to react to the NASD threat. The NASD's attempt to regulate fixed insurance products did hurt sales, but the impact was not the deciding reason for the fourth quarter's sales downturn.

Bank index annuity sales had a record year at nearly $1.2 billion. However, despite reports to the contrary, index annuity sales through banks only represented 4.33% of all index sales for 2005 and were only modestly up from the 3.96% share enjoyed in 2004. We do anticipate that this share of the market will continue to increase steadily, but slowly, as strong annuity bank carriers on the traditional fixed side continue to enter the indexed side of the business.

IUL was the real story this year, with its $186 million in industry premium increasing 50% over the previous year. (The fourth quarter 2005 sales alone were greater than annual sales from the 1990s, and this momentum isn't about to stop.)

At the start of 2005, there were 12 carriers participating in IUL sales. At year-end 2005, there were 20 carriers in the market. There is evidence that six additional carriers are developing index life products, with yet another half dozen taking a serious look.

Based on last year's growth, IUL carriers could outnumber variable life carriers by 2010.