Wink CEO: Second-Quarter US Sales of Indexed Annuities Rise on Sales of Two Private Equity-Owned Companies
September 27, 2013 by Fran Lysiak
PLEASANT HILL, Iowa – Second-quarter 2013 sales of indexed annuities in the United States rose in large part on sales by two private equity-owned companies, according to the chief executive officer of Wink Inc.
Total second-quarter sales rose to $9.2 billion, up 5.5% from the same period a year ago, and increased 17% from the first quarter, according to the firm.
Sales in the first quarter had dropped 2.8% to $7.8 billion from the same period in 2012, and hadn’t been that low in two years — since the first quarter of 2011. They fell mostly on the large drops from Allianz Life and Aviva USA (Best’s News Service, June 7, 2013)
But the second quarter represented the highest-ever quarterly total sales number for indexed annuities, said Sheryl J. Moore, president and CEO of Wink Inc., noting it’s almost 5% greater than the previous highest quarter — the third quarter of 2010.
The reason? Security Benefit Life Insurance and EquiTrust Life Insurance Co. — both companies of private equity firm Guggenheim — accounted for most of the sales, Moore said. Both have products that “are pretty aggressive” as compared to their competitors. This includes the companies’ compensation to agents, rates credited to policyholders and living benefit features, she said.
Private equity firms are increasingly tapping into what they view as a potentially lucrative financial opportunity in fixed annuities, including indexed, in the United States (Best’s News Service, Jan. 16, 2013).
Another reason sales are up is slowly rising interest rates, which is some good news for companies, Moore said. The average annual cap on an index annuity today is 4.95% — nearly 1.5% greater than what it was in the first quarter. On Sept. 20, the 10-Year Treasury is around 2.7%. If the Federal Reserve eventually tapers its third round of bond-buying, known as quantitative easing, many people think it would have a negative effect on rates and the economy, “but there will always be naysayers who disagree,” she said.
With indexed annuities, a type of fixed annuity, the insurer invests most of the customer’s principal in bonds to ensure the policy will generate a small annual return but uses a small portion of the premium to buy options in a stock market index, usually the S&P 500. Options that are exercised can result in additional interest credited to a policy, potentially more than an investor might achieve through other fixed-income investments.
Despite an 11.8% decline in sales from last-year’s second quarter, Allianz Life Insurance Company of North America, a unit of Germany’s Allianz SE, remained the sales leader, according to Wink. The company’s sales were $1.25 billion.
Again capturing second place was Security Benefit Life, with sales of $1.13 billion. Remaining in third place was American Equity Investment Life, a unit of American Equity Investment Life Holding Co., with sales of $1.08 billion. Coming in at No. 4 was Great American Financial Resources, a member of GAFRI Group, with sales of $660 million. Rounding out the top five was EquiTrust Life, with sales of $540.7 million.
Aviva USA, which ranked fourth in the first quarter, dropped out of the top five to rank sixth in the second. Sales for Aviva USA were $504.7 million, which represented a 54.7% decline from last year’s second quarter.
Aviva USA has “intentionally scaled back the attractiveness” of its products due to its pending acquisition by Athene Annuity, Moore said. Athene Holding Ltd. plans to trim the Aviva USA Corp. workforce by 154 positions — about 10% — after it closes on its acquisition of the company in October, according to a letter sent to Aviva employees recently. The $1.8 billion acquisition, which was announced in December, is expected to close in October (Best’s News Service, Aug. 16, 2013). Athene is backed by another private equity firm, Apollo.
Meanwhile, there are a couple guidelines from the National Association of Insurance Commissioners that can be used for reserving the guaranteed lifetime withdrawal benefit riders on indexed annuities, Moore said. Nearly all the indexed annuity companies are adhering to one of the guidelines, Actuarial Guideline 33. Prior to her leaving office at the close of 2012, then-Iowa Insurance Commissioner Susan Voss had granted exceptions to a few companies — including Aviva, Security Benefit and Phoenix Life — to instead adhere to a different guideline, AG 43. The guideline Aviva, Security Benefit and Phoenix Life are following “is purportedly less stringent” than AG 33, the other guideline other indexed annuities companies are adhering to, Moore said.
The use of guaranteed lifetime withdrawal benefit riders rebounded in the second quarter, according to Moore. The quarter marked a record for GLWB elections, with 67.3% of all indexed annuities sales opting to purchase the benefit, when available, according to Moore.
The average charge for one of these living benefit features is 0.94% annually, which is based on the value of the benefit, Moore said. The cash value of the annuity may only be $100,000 but the value of the GLWB may be $200,000. That 0.94% charge is charged against the $200,000, she said, noting about 25 indexed companies do this. This is the only type of living benefit rider being offered on indexed but most popular on stock-market variable annuities.
Only 2% of owners of deferred annuities of all types annuitize their contracts, Moore said. By comparison, just more than 5% of owners of indexed annuities who have a GLWB are currently taking that income under the rider, she said. GLWBs have existed on indexed annuities for seven years, she said.
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
