Wink CEO: Indexed Annuities Made Up Nearly 46% of All US Fixed Annuity Sales in 2013
March 25, 2014 by Fran Matso Lysiak
PLEASANT HILL, Iowa – As sales rose for the fifth consecutive year in 2013, indexed annuities also made up nearly 46% of all fixed annuity sales, while two of the top five companies are now owned by private-equity firms, according to the chief executive officer of Wink Inc.
Total sales of indexed annuities in the United States last year rose to $36.8 billion, an increase of 13.4% from 2012, according to Wink, a firm that tracks the data.
2013 represented the fifth straight year that sales have been up year over year, Sheryl J. Moore, president and CEO of Wink and Moore Market Intelligence, told Best’s News Service, noting sales have continued to rise since 2009.
For 2013, interest rates on bank certificates of deposit as well as fixed annuities continued to be “really low” but rates on indexed were better compared to 2012, Moore said, noting CDs and fixed annuities are the main products that indexed compete against. The rates are much more attractive on indexed than those other fixed instruments, which has driven demand for them, she said, noting the typical rate on an indexed annuity is now about 5%.
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.
By company, Allianz Life Insurance Company of North America, a unit of Germany’s Allianz SE, continued to be tops in sales in 2013 — at $6 billion and a 15.5% market share. Allianz has been No. 1 in sales since 2009, Moore said.
Capturing second place was Security Benefit Life Insurance Co., whose parent is Guggenheim, a private equity firm, with 2013 sales of $4.54 billion. Tracking closely behind at No. 3 were the American Equity companies, part of American Equity Investment Life Holding Co. (NYSE: AEL), with 2013 sales of $4.01 billion.
Great American Financial Resources, a member of GAFRI Group, took fourth place, with 2013 sales of $3 billion. Rounding out the top five was Athene USA, with indexed annuity sales of $2.74 billion last year, according to Wink.
Private equity-backed Athene Holding Ltd., based in Bermuda, last October completed its acquisition of Aviva USA Corp. for about $1.55 billion. Aviva USA is now known as Athene USA, and the deal included Aviva Life and Annuity Co. and Aviva Life and Annuity Company of New York. Athene Holding is owned by several institutional investors, with its largest shareholder being AP Alternative Assets, which is managed by Apollo Global Management, another private equity firm (Best’s News Service, Nov. 21, 2013).
“I am continuing to receive calls from private equity firms researching annuity companies and trying to understand how annuity blocks of business are managed,” Moore said. “Historically speaking, it looks like private equity firms’ modus operandi is to get in and get out and make as much money as possible in a short period of time,” she said, noting this “doesn’t seem consistent with the long-term investments that are fixed and indexed annuities.”
“However, our entire investment market has changed since 2008, so it wouldn’t be beyond me to imagine that private-equity firms may be looking at alternative approaches because everything has changed.”
Athene USA showed a 34.6% decline in sales from the previous period. It also was the only company in the top five to record a drop, according to Wink.
Aviva Life and Annuity, before its acquisition by Athene Annuity, had to make changes to its products make them “less attractive” in terms of benefits, which adversely affected sales, Moore said.
Overall, indexed annuity companies de-risked their products since the financial crisis by reducing commissions, reducing premium bonuses they credit to policyholders and reducing the rollup, or the guaranteed interest rate on the income value on guaranteed lifetime withdrawal benefits, she said.
Total fourth-quarter sales increased to $11.5 billion, up 35% from the same period in 2012.
Allianz Life remained No. 1 in the final quarter of 2013, according to Wink. Security Benefit Life maintained its position as the second-ranked company while Great American, American Equity and Athene USA rounded out the top five, respectively.
As for distribution, independent insurance agents are by far the leading sales channel, making up about 80% of all sales, Moore said, noting many partner with independent marketing organizations. However, banks “are embracing indexed annuities in a way they haven’t before.”
Allianz Life Insurance Company of North America currently has a Best’s Financial Strength Rating of A (Excellent).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)