Fixed index annuity sales took a hit in 2006, dropping by 7.05% to $25.33 billion from $27.26 billion in 2005, according to Advantage Compendium, a St. Louis index product tracking firm.
Why the fall-off? Competition for dollars by bank certificates of deposit, which were paying high rates in 2006, says Jack Marrion, Advantage president.
Especially near the end of the year, some CDs were paying 5% or more, he says, and that was enough to convince many consumers to take their money to the bank rather than put it into an annuity.
Marrion also blames failure, by many index annuity carriers, to respond effectively to Notice 05-50, the controversial warning issued by the National Association of Securities Dealers to its broker-dealer members in August 2005. The notice had cautioned B-Ds against index annuity sales that do not meet certain requirements.
"Some insurers did not think Notice 05-50 would affect their index annuity sales, so they just went ahead, business as usual," says Marrion. "For instance, some insurers did not make efforts to get their index annuities placed on the B-Ds' approved (products) lists, and some did not solicit B-Ds at all about how to sell their index annuities in view of the notice."
That situation has now changed, Marrion says, but the initial lack of response from so many carriers hampered sales in that market throughout the year. So did the negative publicity about FIAs that still lingers in the wake of NASD issuing the Notice, he says.
The 2006 FIA results include the experience of 57 companies now active in the market. By comparison, in the 4th quarter of 2005, only 48 companies were active in the market, according to Advantage.
In both 2006 and 2005, the Advantage results reflect 95% of the active index product companies and 99% of the industry's total products, says Marrion.
