Despite market uncertainty, 2005 sales of equity-indexed annuities set a record.Despite uncertainty in the equity-indexed annuity equity-indexed annuity A contract with an insurance company that promises periodic payments keyed in a specified manner to a stock market index. Unlike variable annuities, equity-indexed annuities specify a guaranteed minimum return that is typically 3%. market, triggered by the National Association of Securities Dealers' notice to member broker-dealer firms last August, sales for the product in 2005 reached record highs. Meanwhile, Iowa's insurance commissioner, who heads the National Association of Insurance Commissioners' Market Regulation and Consumer Affairs Committee, is joining with Minnesota regulators to educate colleagues about the product. Both states are home to companies with big market shares in equity-indexed annuities. Indexed annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. sales for 2005 stood at nearly $27.3 billion, setting a record for the 11th consecutive year, accord ing to Advantage Compendium com·pen·di·um n. pl. com·pen·di·ums or com·pen·di·a 1. A short, complete summary; an abstract. 2. A list or collection of various items. , a research and consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee consulting company business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a . Most of the money flowing into indexed annuities is coming from tax-free fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. exchanges and certificates of deposit, said Jack Marrion, president of Advantage Compendium. Insurance agents continue to sell 19 of every 20 indexed annuities, the firm said. Since the product was introduced in the mid-1990s, sales have increased steadily, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. a research paper from Limra International Inc. authored by Patrick Leary. Results have been especially strong in the wake of a struggling stock market, he wrote. The product seems to be the best of both worlds, allowing consumers to participate in market gains while providing loss protection through guarantees and floors, Leary wrote. But despite the strong 2005 results, fourth-quarter sales for indexed annuities were down 6% from the third quarter and down 4% from the fourth quarter of 2004, according to Advantage Compendium. Factors contributing to the decline, Marrion said, were higher rates on certificates of deposit and the uncertainty surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. the NASD's August 2005 Notice to Members 05-50. Citing concerns about "marketing, supervision, disclosure and investor-protection issues," the NASD NASD See: National Association of Securities Dealers NASD See National Association of Securities Dealers (NASD). issued the formal guidance to registered firms that sell equity-indexed annuities. The guidance did not state whether a particular equity-indexed annuity is a security. But the uncertainty over whether certain unregistered equity-indexed annuities may be securities complicates a broker-dealer's supervisory responsibilities, the NASD said. If an equity indexed annuity is an insurance product, then a firm would have to treat equity-indexed annuity sales by its brokers as an outside business activity, the NASD said. If the equity-indexed annuity is a security, the firm would have to supervise the sale as a private security transaction. Perhaps most notable were some of the new entrants to the indexed annuity market in 2005, experts said. These companies are "predominantly pre·dom·i·nant adj. 1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant. 2. " in the variable and fixed annuity markets, as opposed to most of the existing companies that overwhelmingly sell indexed annuities, Marrion said. Two companies that entered the market are based in Iowa: Principal Financial Group Inc. and CUNA Cuna Chibchan-speaking Indian people who once occupied the central region of what is now Panama and the neighbouring San Blas Islands and who still survive in marginal areas. In the 16th century they lived in federated villages under chiefs who wielded considerable power. Mutual, Marrion said. American Equity and AmerUs also are based in Iowa. Companies headquartered in the state represent the largest market share for indexed annuities, Marrion said. Iowa Insurance Commissioner Susan Voss, in a statement to Best's Review, expressed a commitment to streamlining market-conduct regulation, which includes coordinating market-conduct examinations among states. In reviewing market-conduct exams being done on one Iowa indexed annuity writer, Voss said that she "realized that there was a lack of understanding of the product." Iowa has joined with Minnesota--which has 34% of the indexed annuities market--and recently presented a seminar to educate regulators on the product, Voss said. "With a better knowledge base, we may be able to coordinate exams and lessen less·en v. less·ened, less·en·ing, less·ens v.tr. 1. To make less; reduce. 2. Archaic To make little of; belittle. v.intr. To become less; decrease. the number of exams," she said. The NASD and the Minnesota Department of Commerce said they are co-hosting an annuity roundtable in Washington, D.C., on May 5. The NASD's chairman and chief executive officer, Robert Glauber, earlier this year proposed a summit conference "where regulators and senior representatives of the securities and insurance industries can meet to discuss the best ways to level the investor protection playing field among and between these products." The NASD and state securities regulators have jurisdiction over sales of variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. ; the state insurance commissioners oversee sales of fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. ; and jurisdiction over equity-indexed sales is "essentially a jump ball," because it isn't clear whether they're securities, insurance products or something in between, according to Glauber. Jeremy Alexander, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Beacon Beacon, city (1990 pop. 13,243), Dutchess co., SE N.Y., on the E bank of the Hudson River; settled 1663, inc. in 1913 when Fishkill Landing and Matteawan villages were united. Research, an independent research organization that tracks fixed annuity sales, said he expects more big names to step into the EIA (Electronic Industries Alliance, Arlington, VA, www.eia.org) A membership organization founded in 1924 as the Radio Manufacturing Association. It sets standards for consumer products and electronic components. market over the next two years. Principal's move into indexed annuities is significant because the company has a "fairly conservative profile," he said. Smaller, more aggressive companies dove into the market early, Alexander said. Other companies entering the market in 2005 were Fort Dearborn Fort Dearborn, U.S. army post on the Chicago River, NE Ill.; est. 1803 and named for Secretary of War Henry Dearborn. Threatened by the indigenous population at the start of the War of 1812, the frontier post was ordered by Gen. William Hull to evacuate. On Aug. Life; Nationwide; Protective Life and its affiliate, West Coast Life; and Standard Life & Accident, Marrion said. Re-entering was Great American Life. Many of the new carriers are offering lower-commission, shorter surrender products, he said.
Top 10 Carriers, 2005,
Equity Indexed Annuities
Based on sales and market share:
2005 Sales Market
Companies ($ Billions) Share (%)
Allianz Life $8.79 32.4
American Equity 2.69 9.8
AmerUs Group 2.39 8.8
Old Mutual 2.38 8.8
ING 2.03 7.5
Midland National Life 1.21 4.5
Jackson National Life 1.04 3.8
Sun Life 1.01 3.7
EquiTrust .80 3.0
Jefferson-Pilot .78 2.9
Source: Jack Marrion, Advantage Compendium
Ltd.
Top 10 Variable Annuity
Issuer Sales
Based on new sales *, year end 2005:
New Sales Market
Companies Billions) Share (%)
TIAA-CREF $13.55 10.25
MetLife 12.49 9.45
Hartford Life 11.37 8.61
Axa Financial/MONY 10.59 8.01
Lincoln National Life 8.41 6.36
AIG/SunAmerica/VALIC 7.94 6.01
John Hancock Life 7.91 5.99
ING Group 7.83 5.93
Pacific Life 7.20 5.44
Pru/American Skandia 7.10 5.37
Industry Total $131.73
* Sales of, and subsequent payments to, variable
annuities issued by the reporting company,
excluding exchanges between variable annuities
issued by the reporting company or its subsidiary
companies.
Source: Morningstar Inc.
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