Indexed annuity sales are killin’ it

September 30, 2012 at 08:00 PM
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Just when you think that things cannot get any worse in the annuity market, they do. The 10-year Treasury, a driver of fixed and indexed annuity rates, began its descent from 4.61 percent in October 2007 to a miniscule 1.4 percent just over a month ago. What does this mean for indexed annuities? It means changes. Will these changes result in the death of indexed annuity sales? Let's see…

It might help if we first discussed the competitiveness of indexed annuity products. Let's start by comparing the typical indexed annuity from before the Treasury's decline to the standard product being offered today.

Today's annuities might not sound attractive compared to the products you were selling five years ago. After all, the typical indexed annuity's premium bonus is half of what it was back then. The GLWB rollup on that same product is 75 percent lower than back in 2007, and yet the rider charge on that same GLWB has more than doubled. Annual point-to-point (PTP) crediting method caps have declined by more than 3.5 percent since before the market's collapse, and you are being paid almost 1.25 percent less commission to try and make this sound like a fabulous deal. That's a tough sell, isn't it?

Psychology tells us that indexed annuities are now "unattractive." It also has us convinced that nobody would want to purchase a product "with such low rates." However, we shouldn't be comparing today's annuities to products sold in the past. We need to compare today's indexed annuities to alternatives that are available today.

Points of comparison

Certificates of deposit (CD) and fixed annuities are the most appropriate comparison to indexed annuities. No matter how you spin it, today's average cap of 3.07 percent is still something to call home about versus today's average 0.31 percent CD rate. That same 3.07 percent cap that adorns your typical indexed annuity is also more than double the 1.51 percent rate being credited to fixed annuities. In fact, indexed annuities are the most competitive "safe money" option available today.

Perhaps this is why sales of every variety of annuity are down in the second quarter, with only one exception: indexed annuities. Where some types of fixed annuity products experienced sales declines of 30 percent or more during the second quarter, indexed annuity sales are up more than 8 percent. In fact, second-quarter sales of indexed annuities were the second-highest ever. Indexed annuity sales are killin' it, and in the most challenging market ever.

"We shouldn't be comparing today's annuities to products sold in the past."

Sheryl Moore is president and CEO of AnnuitySpecs.com and LifeSpecs.com, indexed product resources in Des Moines, Iowa. She may be reached at [email protected]. Responses and questions can be sent to [email protected].

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