Why FIA Producers See A Silver Lining In 3Q
December 3, 2014 by Linda Koco
Third quarter sales of fixed index annuities may have dropped by nearly 8.6 percent from the previous quarter, but annuity producers are hardly singing the blues.
That’s because fixed index annuity (FIA) sales were moving swiftly for many in the field. In fact, when compared to third quarter last year, FIA sales were up. The increase was substantial — by 14.3 percent, to nearly $11.5 billion, according to Wink, Inc. The researcher based its findings on a survey of 51 carriers that it said represent 99.8 percent of third-quarter FIA production.
Agent commissions were up too. The increase was by a fractional amount but still meaningful considering market conditions.
The average compensation rose to 6.04 percent in third quarter from 6 percent in second quarter, 5.9 percent in first quarter, and the low of 5.6 percent in fourth quarter last year. “This makes for the third consecutive increase after two years of decline,” said Sheryl Moore, president and CEO of Wink Inc. and Moore Market Intelligence.
Sales success
LIMRA Secure Retirement Institute (LIMRA SRI) reported similar estimated FIA sales results for third quarter 2014. The sales were $11.7 billion, down 11.5 percent from second quarter but up by 15 percent from third quarter last year.
Moore takes the long view on the third quarter performance. “It’s hard for an industry to show growth every single quarter,” she told AnnuityNews.
In Moore’s view, FIA sales were “phenomenal” in third quarter and were in line with the average range for this year, which is $9 billion to $11 billion per quarter. Since 2004, only two other quarters have been higher — second quarter 2014 (nearly $12.6 billion) and fourth quarter 2013 (more than $11.5 billion).
Moreover, Moore said, FIA sales for the first nine months are “greater than they have been in any full year with the exception of 2013’s record-setting sales.” The year-to-date (YTD) results put 2014 sales at $35.9 billion, up nearly 29 percent from YTD last year.
LIMRA SRI found the same YTD trend: Estimated FIA sales totaled $36 billion for the nine months, up 31 percent from last year.
Moore is predicting FIA sales will “easily” reach more than $45 billion by year-end.
She is not alone. Cogent Reports said that a study it did this summer with 870 life insurance agents and financial advisors found many were expecting increased FIA sales for the rest of the year. “More producers forecast an increase in their fixed index annuity sales than intend to redeem assets held in these contracts for the remainder of the year,” Cogent said in September.
Upbeat expectations
Why are expectations for the rest of the year decidedly upbeat? A look at FIA sales leader Allianz Life provides some insight. The carrier finished the quarter with a market share of nearly 27 percent, according to Wink. That’s on FIA sales of nearly $3.1 billion. On a YTD basis, its FIA sales reached $9.7 billion.
But even this mega-FIA-seller saw FIAs decline in third quarter from second. The Allianz decline was by 19 percent, according to Wink. But when compared to third quarter last year, the company’s FIA sales increased by a whopping 137 percent. And when compared on a YTD basis, this year’s results were up even more — by 161.6 percent.
Not incidentally, the company has held first place in FIA sales for 13 of the last 17 years, and also for all three quarters this year. Four of its products are on Wink’s top 10 products list for third quarter as well.
Moore points to the carrier’s Allianz Preferred program as a big factor in its growth. The program is an exclusive sales platform for insurance marketing organizations (IMOs) that qualify to participate. The company said the IMOs gain access to such perks as proprietary FIAs and bonus compensation.
Another contributing factor is Allianz’s focus on its FIA income riders, Moore said. “When interest rates are low, as they have been, income gets more attention than accumulation.”
In its third quarter report, Allianz names two additional factors as drivers: the company’s “innovative index strategy” and its “high penetration” in the broker/dealer channel.
As for why it FIA sales came in below the previous quarter, Allianz said this was due to the impact of pricing changes it implemented in response to the decreasing interest rate environment.
Optimism factors
Those glimpses into the Allianz sales factors touch on several FIA trends that are contributing to the prevailing optimism about FIA sales in general. For example:
Exclusivity. This is occurring not just at Allianz. In April, for example, Americo Financial entered into an alliance with Legacy Marketing Group. “This gave them new products and marketing attention for their accumulation-oriented FIAs,” Moore said. In third quarter, the carrier moved into second place among top FIA sellers, up from third place in second quarter.
Some carriers are also developing products exclusively for distribution through specific channels. For example, American General — now in 10th place, up from 12th in second quarter — has developed new products for distribution not only by independent agents, but also products for distribution through banks, wirehouses and B/Ds. “That’s in addition to products for general distribution,” Moore said.
Interest crediting options. Two FIA carriers now offer 15 different crediting options, and most carriers offer “numerous” options or crediting methods, Moore said. “This is partly driven by the commoditization of the products that has resulted from regulations on surrender charges. The carriers want to ensure that their products have enough differentiation to attract attention.” In the third quarter, nearly 28 percent of FIA sales included a hybrid index, according to Wink.
Wirehouse and B/D distribution. The enactment of Dodd-Frank has affirmed that FIAs will be regulated as insurance products. With the boundaries now clear, Moore said, more carriers are entering the wirehouse and B/D channels, which are becoming more receptive to selling the fixed products. Two carriers recently entered the wirehouse channel, for example, and others are looking into it. The moves are already impacting sales: In third quarter, 4.6 percent of FIA sales came from wirehouses, up from 2.5 percent in third quarter last year, according to Wink.
Perhaps it is a sign of the times: The average FIA premium rose to a new high in third quarter, to $84,605, Wink reported. That’s up by 3 percent from second quarter, and it’s even a smidgen higher than the previous high of $84,466, which occurred in third quarter last year.
