Indexed Annuity Sales Plummet?

The plane has crashed into the building.  Fixed Indexed Annuity sales are down.  Repeat. Fixed Indexed Annuity sales are down.  And substantially.  The bubble has popped.  If you can’t tell already, I am being sarcastic.  However, the numbers are in for first quarter fixed indexed annuity sales and they are down.  Let’s dive into the numbers for a minute.

For first quarter, 2013, total indexed annuity sales from 44 carriers came in at $7.8 billion.  This is compared to $8.2 billion in sales in first quarter 2012.  The number one carrier in sales for the quarter is Allanz Life with “new comer” Security Benefit finishing in second in overall sales.  Security Benefit had the number 1 (TVA –Total Value Annuity) and number 3 (SIA – Secure Income Annuity) selling products.

So why are sales down? Are indexed annuities old news? Not exactly.  There are 3 main factors that I see that have affected sales of FIAs in the first quarter.

  1. Historically low interest rates – We’ve been battling low rates for some time now.  If you are a reader of our blog, you’ve probably seen countless entries on the subject.  That being said, rates have moved higher in the past 60 days, which has already resulted in higher caps, higher bonuses, better riders and even better compensation.
  2. The Stock Market – Equities have been performing extremely well over the past few years and we all know how short-term our memory is.  Some clients have been choosing risk products versus no-risk products for fear of “missing the boat.”
  3. DIA – Deferred Income Annuities – The most popular feature on indexed annuities right now are the income riders.  Many clients are purchasing these products for this reason alone.  Deferred Income Annuities have come on the scene and have taken some of the sales that would have normally gone to FIAs with Riders.  DIAs are basically deferred SPIAs.  Many times they can offer a higher lifetime income.  And sometime the payouts are even more tax-favorable than those on the indexed annuity riders.  DIAs are up 150% first quarter 2013 versus 2012.  Sales were $386 million versus $115 million.  One could argue that this alone accounted for half of the difference in year over year sales for FIAs.

Indexed Annuities have not bubbled. Sales are down slightly for many reasons, but particularly the ones mentioned above.  As interest rates rise, we will see higher caps and better products for clients and well as market volatility.  These two items mixed together will lead to higher sales.  Also, we know the baby boomers are coming.  And as they come, guaranteed income that cannot be outlived will continue to be important.  Special Thanks to Sheryl Moore and Beacon for assembling and reporting the numbers.

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