Equity-indexed annuity sales unfazed by market volatility. (Life/Health).

Equity-indexed annuity manufacturers enjoyed sales of $1.59 billion in the third quarter 2001, up 31% from the same time in 2000, according to The Advantage Group, St. Louis, which tracks the industry

Sales were $4.45 billion through the year's first nine months, putting the industry on track to increase sales for a sixth consecutive year, said Jack Marrion, president and founder of the company. The industry needs less than $1 billion of sales in the fourth quarter to again break its sales record, he said.

Despite the year-over-year surge, sales were down by 0.75% from the second quarter, the industry's best. Marrion explained the drop by noting that there were virtually no sales during the week or so after Sept. 11, based on anecdotal evidence.

"So one-twelfth of the quarter was gone," he said.

Forty companies participated in the equity-indexed annuity third quarter survey, representing 91% of companies that offer the product. Marrion estimates they account for 99% of total equity-indexed annuity sales, with the top-10 players responsible for 87%. Midland National Life Insurance Co., Sioux Falls, S.D., bumped the Allianz Life Insurance Company of North America from the top spot, with premiums of $325.6 million to Allianz's $324.7 million. Allianz had been the top seller for five consecutive quarters.

The average equity-indexed annuity premium in the third quarter was $33,032, up about 10% from the second quarter. Equity-indexed annuities with surrender periods of 10 years or more accounted for about 80% of sales. Marrion said that based on premium, the weighted surrender period on product sold was 11.75 years.

As with variable annuities, the industry has embraced the use of bonuses to attract new buyers. Marnon said the greatest sales growth in the third quarter was in products offering bonuses of 5% or more of the initial premium. These higher bonuses, which Marrion said "are more appealing to people with surrender charges on their existing policies," started to appear about the middle of 2000 and have become more noticeable since January 2001. Some companies have offered smaller bonuses of 1% to 3% from the time equity-indexed annuities were first marketed, he said, but the higher bonuses appear to be incentives for people to exchange existing policies for new ones.

Commissions are also on the rise. In the third quarter, the average weighted agent commission was 10.62% of premium, up from 8.05% in 1998. Companies pay higher commissions on policies with longer surrender periods, Marrion said.

Equity-indexed annuity sales are still only a fraction of variable annuity sales. According to reports from the Variable Annuity Research and Data Service, variable annuity sales hit a record $138 billion in 2000, but had fallen off that pace in the first half of 2001, with $57.7 billion in sales. Marion said, however, that he has been receiving inquiries about equity-indexed annuities from the big players in the life insurance industry many of whom had shown interest in 1995-96 but had decided against designing a product. If they join the fray in the coming months, they likely would design a different type of product for investment advisers with lower commissions and costs, he predicted.

Index Annuities

Third-quarter sales leaders:

Company              ($ Millions)

Midland National           $325.6
Allianz                     324.7
American Equity             220.3
AmerUS Group                130.9
Jackson National             85.9
Conseco                      82.4
Keyport Life                 67.4
North American               62.0
ING USG Annuity              43.0
Fidelity & Guaranty          42.0

Source: The Advantage Group