By Sheryl Moore
AnnuityNews

March 21, 2011 — You’ve probably heard by now that indexed annuity sales set a third consecutive annual record last year. Of course it comes as no surprise to an indexed annuity nerd like me, but many outside our industry are asking — how did you guys do it? Here’s the skinny…

Sales of indexed annuities hit a record high in 2008 when they peaked at $26.7 billion. Fueling that momentum was the collapse of the equities markets during the first quarter of the year. Americans were suddenly reminded that it felt uncomfortable to lose money. The solution — find a retirement savings product with a guarantee and return-of-principal that wasn’t subject to losing value as a result of market volatility. Fixed and indexed annuities were the natural beneficiaries of this change in buyer mentality. Specifically, indexed annuity sales soared more than 6 percent over 2007 sales levels for the year. 

In 2009, the insurance industry outdid itself, hitting a record level $30.1 billion in indexed annuity sales. The nearly 13 percent increase in sales over the previous year was largely a result of consumers’ continued search for safety from market volatility in their retirement portfolios. On the other hand, when you consider all the changes that insurance companies had to make to their indexed annuity portfolios in 2009, you’d find it hard to believe that sales were so high. Annuity products had issue ages reduced, minimum premiums increased, Guaranteed Lifetime Withdrawal Benefit (GLWB) riders pulled, premium bonuses reduced, commissions dropped and more. At times, because of the limited capital, insurance agents were looking for an insurance company that would accept their client’s request to purchase an annuity. Ultimately, with a little elbow grease, a surplus of needy customers, and a lot of patience, insurance agents helped 60 insurance companies make history by setting an unprecedented sales level. It was most definitely a challenge to stay abreast of all the changes … and STILL sales increased. (Imagine what level of sales could have been achieved had everyone not had all of those challenges.)

As if a two-year-running-streak of record sales were not enough, 2010 set a third consecutive sales record. Sales of indexed annuities for the most recent year hit $32.3 billion, an increase of more than 7 percent over 2009’s record sales.Like the previous year, 2010 proved to be a challenging time to be selling annuity products. Record-low interest rates plagued insurance companies, resulting in continued product changes. The barrage of product modifications included increased GLWB charges, reduced GLWB rollups, and additional premium bonus and commission declines. At times, the products the agent was offering to clients were no longer available by the time they placed the application. And like the previous year, insurance agents rose to the occasion, thumbed their noses at the challenges, and helped 41 insurance companies make history yet again.

At the close of 2005, indexed annuities accounted for a third of all fixed annuity sales. Just five years later, they accounted for 40 percent of all fixed annuity sales. What will become of indexed annuities five years from now? I project that they will overshadow sales of fixed annuities and dwindle the spread between their sales levels and that of their variable counterparts. As long as historical-low interest rates persist and consumers feel a need to protect their retirement dollars, indexed annuities will continue to set records. You’ve got my name on that.

Sheryl J. Moore is President and CEO of AnnuitySpecs.com, an indexed product resource in Des Moines. She has more than a decade of experience working with indexed products, and provides competitive intelligence, market research, product development, consulting services and insight to select financial services companies. She may be reached at sheryl.moore@annuityspecs.com.

© Entire contents copyright 2011 by InsuranceNewsNet.com, Inc.  All rights reserved.  No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.