Sales of Indexed Annuities Soar in 2nd Qtr, Says Beacon

For the entire fixed annuity market, 2009 has been a bumper year so far. On a year-to-date basis, total market sales were an estimated $62.6 billion, 39% above first half 2008.

Apparently ignoring the legal controversy over indexed annuities, investors purchased $8.2 billion worth of those odd, structured products in the second quarter of 2009, 16% more than in the first quarter, and 20% more than in the second quarter of 2008, according to the latest Beacon Research Fixed Annuity Premium Study.

Fixed Annuity Sales by Product Type, 2Qtr 2009 (with YTD figures)
  • Book value: $14.0 billion ($33.2 billion). (These contracts pay a declared interest rate for a specific term).
  • Indexed: $8.2 billion ($15.3 billion). (Returns of these contracts are tied to the performance of an equity index).
  • Market value-adjusted: $3.5 billion ($10.0 billion). (Payouts are adjusted if the holder withdraws assets before the end of the contract).
  • Fixed income: $2.2 billion ($4.1 billion). (Immediate or deferred annuities that provide income for life and/or for a specific period).

For the entire fixed annuity market, 2009 has been a bumper year so far. On a year-to-date basis, total market sales were an estimated $62.6 billion, 39% above first half 2008. Second quarter 2009 sales were an estimated $27.8 billion, according to Beacon, which covered 410 products. Quarterly sales were 10% higher than those of second quarter 2008. but 20% below the previous quarter.

But sales were down 20% from the first quarter, when fixed annuity sales were the beneficiaries of the flight from equities and the steep yield curve, itself the result of the suppressed Fed funds rate. A steep yield curve gives fixed annuities, which are pegged to longer maturity bonds, a competitive advantage over bank certificates of deposit, which are pegged to shorter maturities.


Indexed annuities, once known as equity-indexed annuities, sold a quarterly record of $8.2 billion, accounting for about 30% of all fixed annuity sales and reversing a five-quarter decline. Introduced in the late 1990s, indexed annuities characteristically consist of about 95% in bonds and about 5% equity index futures.

Indexed annuity sales boomed in the early 2000s. They appealed to investors who were willing to dip only one toe, figuratively speaking, in equity waters after the dot-com bust. Indexed annuities protect against downside loss but allow investors to participate in an equity rally.

Fixed Annuity Sales Leaders, 2Qtr 2009
By product type:

  • American National replaced MetLife as the new MVA sales leader.
  • New York Life remained first in book value and fixed income annuity sales.
  • AVIVA remained the leading indexed annuity issuer.

The five best-sellers were:

  • New York Life’s Preferred Fixed Annuity, a book value product.
  • Allianz Life’s MasterDex X, an indexed annuity.
  • New York Life’s NYL Fixed Annuity, a book value product.
  • AVIVA/American Investors Life’s Income Select Bonus, an indexed annuity.
  • Pacific Life’s Pacific Explorer, a book value product.

But indexed annuities are currently in legal limbo. The SEC has ruled that indexed annuities are not exempt from securities laws, but this summer the U.S. Court of Appeals insisted that the SEC review the ruling’s market impact.

Except for MVAs, all product types saw sales increases from second quarter 2008. Book value and fixed income annuities were up 10% and 2%, respectively. MVA sales fell 5%. Income annuity sales were up 12% quarter-to-quarter. MVAs dropped 47%, while book value products fell 27%.

Relative to first half 2008, there was double-digit growth in all product types except fixed income. MVAs were 68% ahead, book value products were up 48%, and indexed annuities advanced 22%. Fixed income sales rose 4%.

MetLife fixed sales fade

Top Fixed Annuity Products by Distribution Channel, 2Q 2009
  • New York Life’s NYL Preferred Fixed Annuity replaced NYL Fixed Annuity as the top bank channel seller.
  • The Allianz MasterDex X became the new bestseller among independent producers.
  • RiverSource Life’s Rate Bonus 1, a book value annuity, remained the leading captive agent product. (American Express advisors distribute RiverSource products.)
  • American National’s Palladium MYG annuity, an MVA product, reclaimed the lead in the independent broker-dealer channel.
  • Pacific Life’s Pacific Frontiers, also an MVA product, was the new wirehouse bestseller.
  • MetLife’s Target Maturity MVA product continued as the top product in the large/regional broker-dealer channel.In overall sales, New York Life advanced to first from second place, replacing MetLife, which fell to seventh. AVIVA USA moved up a notch into second place while Allianz Life jumped four spots third. AEGON/Transamerica advanced to fourth from fifth place.  American Equity rejoined the top 10 and came in fifth.

Asked why MetLife sales dropped to only $951 million in the second quarter from $3.63 billion in the second quarter, aMetLife spokesperson said that fixed annuities were not as attractive in the second quarter and that MetLife did not cut back on marketing the products.

“Many companies have a target level of annual sales per year,” said Judith Alexander of Beacon Research. “They may have sold most of the fixed annuities they planned to sell for all of 2009 in Q1, when the demand was there and credit spreads were wider, making the business more profitable then than it is now.”

“The downside of this approach is that your distribution can feel short-changed when you start to close the spigot, as it were. I don’t know if any of this was true in the case of MetLife, however,” she added.

© 2009 RIJ Publishing. All rights reserved.