Carriers Back Away from Registered Indexed Annuities
November 9, 2011 by Linda Koco
November 09, 2011
ING Groep NV stopped selling registered indexed annuities at the end of October, and now some annuity watchers are wondering if that spells the end of the registered indexed annuity marketplace.
Probably not, but registered sales will likely swoon for a while. The question comes up because ING actively sold registered IAs longer than any other carrier. Its departure turned heads.
The company first entered the market with the SmartDesign Multi-Rate Index Annuity, a registered product that debuted in 2002-2003 but was pulled mid-decade. Then the carrier re-entered the market in June 2010, with its ING Select Multi-Index 5 and ING Select Multi-Index 7 products — the two registered IAs that ING stopped selling in October.
The most recent pullout wasn’t due to lack of sales, says Sheryl Moore, president of AnnuitySpecs.com. The ING Select Multi-Index products “sold decently,” she says. The chief reason for the market exit was that the minimum guaranteed interest rate in the product was too high for today’s continued low-interest rate environment.
Whenever interest rates improve, ING will likely re-enter the market, she predicts, citing the carrier’s previous demonstrated interest in, and history with, the product line.
In the meantime, or if that never happens, the carrier has fixed IAs that it can sell through registered reps who have clients that still want an indexed annuity. The rep’s broker/dealers (B/Ds) will need to agree to the reps selling the fixed product, though.
B/Ds accounted for only 3 percent of all indexed annuity sales in second quarter 2011, according to AnnuitySpecs. This suggests that a stampede from the B-D community to fixed IAs is probably not on the horizon.
Moore’s take on the situation is that “the companies that are registering their products should do more training on fixed indexed annuities, rather than assume the prospectus is going to earn them the advisor’s approval.”
The registered IA market does have a few other players in the AnnuitySpecs database. One is PHL Variable Life (a Phoenix company), which Moore says launched two registered IAs a few years ago but has yet to report sales on the product to her firm. Another is Eagle Life (a subsidiary of American Equity), which Moore says filed a registered IA in 2009 but has not yet launched.
Given that these two products apparently are not actively selling right now, or at least not selling much, it looks as if the registered IA market is at a standstill.
However, Moore says there is another product that debuted this year that she considers to be part of the registered IA market. This is Inflation Guard, a registered annuity from John Hancock Annuities that just launched in September.
Moore views the Hancock product as a registered IA because it links its interest crediting to the year-over-year change in the Consumer Price Index-Urban (CPI-U). However, Hancock says the product is filed as a registered market value adjusted annuity, not an indexed annuity, and so should not be followed as a registered IA.
That bone of contention is not likely to send shivers to the registered IA community one way or the other. After all, registered IA sales have not been anything to write home about.
According to AnnutySpecs’ second quarter 2011 index annuity report, total registered indexed annuity sales for the quarter were nearly $25 million.
That’s chump change compared to total fixed indexed annuity sales for the quarter, which AnnuitySpecs puts at nearly $8.2 billion.
However small, sales are growing. Registered IA sales in second quarter 2011 were up 15 percent over first quarter, and also up 1328 percent over second quarter of 2010 (when total sales were just $1.8 million).
Similarly, on a first-half basis, registered IA sales were $48 million in the first six months of 2011, according to AnnuitySpecs. That’s still just a drop in the indexed annuity bucket, but the figure is 2330 percent higher than first half 2010.
With ING now gone from the market, those numbers will likely start falling. But the jump in sales between 2010 and today suggests that the product line may have sales potential — for some carrier, sometime in the future.
In the late 1990s, Valley Forge Life Insurance Company, a subsidiary of CNA, offered a registered IA, which it called a registered equity index annuity, but that product has long since been pulled from the market.
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