Transcript Guaranteed Income for Life- with a Competitive Edge

Sales and Trends in Indexed Annuity Product
Development
Iowa Actuaries Club
February 22, 2008
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
Advantage Group Associates, Inc.
Source:AnnuitySpecs.com
Indexed Annuity Sales
Inverse Relationship with CD Rates
and IA Sales
8000
8.00
7000
7.00
6000
6.00
5000
5.00
4000
4.00
3000
3.00
2000
2.00
1000
1.00
0
0.00
Index Annuity Sales (in millions)
CD Rates
4Q2007
Indexed Annuity Sales
Allianz Life
$1,537,573,801
23.89%
1,062,241,588
16.50%
American Equity
524,847,349
8.15%
Old Mutual
447,006,778
6.95%
Midland National Life
401,500,000
6.24%
ING
293,020,947
4.55%
North American Company
247,200,000
3.84%
GAFRI
227,359,390
3.53%
Equitrust
221,033,241
3.43%
214,339,502
$6,449,054,723
3.33%
AVIVA
Jackson National Life
Total Sales
Indexed Annuity Sales 2007
Allianz Life
$5,423,663,031
21.53%
AVIVA
4,346,357,951
17.25%
American Equity
2,093,575,756
8.31%
Old Mutual
1,960,027,363
7.78%
Midland National Life
1,655,900,000
6.57%
ING
1,312,603,929
5.21%
GAFRI
1,007,147,390
4.00%
Jackson National Life
893,500,575
3.55%
Equitrust
878,471,063
3.49%
783,926,525
$25,192,760,288
3.11%
Conseco/Bankers Life
Total Sales
Sunshine in your email box!
 Annuity Writers Face More Regulatory Control
Over Sales, But Less Control Over Those Who Sell
Them

Quick Q&A on Fixed Indexed Annuities

The DOWNSIDE to Market Proof Annuities
Sunshine in your email box!

New Regs, Lawsuits Help Make Annuities Less
Restrictive

NAIC Releases List of Top Annuity Consumer
Complaints

Iowa Tests Annuity Disclosure Documents
Sunshine in your email box!

The Trade-Offs of Annuity Guarantees

Regulators Announce Joint Suitability Project

Official Settles One Annuity Suit, Starts Another

Allianz Life Arm Agrees to Pay $10 million Fine
Sunshine in your email box!

California Official Settles Annuity Suitability Action

Allianz to Pay $10 Million to Settle Lawsuit

Annuity Writers Face Issues of Sales Suitability

Insurance Commissioner Poizner Announces $10 Million
Settlement with Allianz for Allegedly Deceiving Seniors into
Purchasing Unsuitable Annuities
Sunshine in your email box!

Insurance Chief Says Allianz Life Insurance
Company of North America Sold Ill-Fitting Policies
to Seniors

Fixed Annuity Companies Pledge Help to Stop
Unfair Sales Practices

Minnesota Settles Annuities Case for Senior Citizens
Sunshine in your email box!

Allianz Life Reaches $10 Million Dollar Settlement
with Calif. Over Annuity Sales Suitability

American Equity Reports $5 Million Loss in Fourth
Quarter

American National’s Fourth Quarter Profit Down
51.9% on Drop in Investment Income
Sunshine in your email box!

Service provided to my clients for a single
month
– A single positive article?
– Three neutral articles
– Sixteen different negative articles

All public sources of information
– Ready and available for our clients on Google!
How did we get here?
How can we stop it?
Popular Product- Then

Direct 16
–
–
–
–
–
–
–
14-year surrender charge/25% scale year one
70% @ 3% minimum gtd. surrender value
4 daily AVG strategies and a fixed
No bonus
Full AV upon death, 10% PF w/ds year 2
Issued to age 75
Street level commission of ???
Top Ten Product Analysis- Then
2Q2003
Rank
Carrier
Product
1
2
3
4
5
6
7
8
9
10
Allianz
Allianz
IIC
MNL
AmerUs
Allianz
AEIL
Sun
OMFN
MNL
BonusDex
FlexDex MultiChoice
MarkOne
Bonus 11
Multi Choice 10
PowerHouse
Premier Plus
MultiPoint
Loyalty Rewards
Legacy Bonus 11
Surrender
Charge
Bonus
Forever
12
12
14
10
10
16
10
12
14
10%
5%
0%
11%
4%
0%
6%
0%
12%
11%
Street
Times in
Level
Top 10
Comp.
11.00%
9.00%
10.00%
9.00%
9.00%
9.00%
8.00%
9.00%
8.00%
9.00%
1
1
1
1
1
1
1
1
1
1
10/10 States
10/10 Rule and Product
Development

What is it?
– Desk drawer regulation limiting surrender charges and
scales on policy forms for annuities
 10 years/10% scale

How has it changed products /distribution?
– B/Ds in the mix

Product trends since 10/10
– Surrender charges, bonuses, compensation, vesting
Lower Surrender Charges on the
Rise
No. of Products by Surrender Period
29.8%
24.4%
20.2%
13.9%
10.8%
1.2%
5 Yr & Less
6 - 7 Yr
8 - 9 Yr
10 Yr
11+ Yr
Annuitize
Premium Bonuses: Price For All
That You Can…
16.5%
15.0%
13.4%
11.0%
10.2%
9.4%
9.4%
7.9%
6.3%
4.7%
All Others
12.5%
10%
8.0%
7.5%
6-7%
5%
4%
3%
< 3%
Premium Bonus Percentage
Comp- All Over the Board…
Products by Agent Commission Level
22.0%
17.4%
12.7%
9.6%
10.6%
10.6%
9.0%
< 4%
5%
6%
7%
8%
Commission Amount
8.4%
9%
> 9%
All Others
Compensation Trends

Indexed Annuity commission received by the agent
averaged 7.74% of premium as of 4Q07
– A reduction of 0.31% from 3Q07

Average SLC for all products on the market as of 4Q07
is 6.93%
– A reduction of 0.02% from 3Q07

Presently, street level compensation ranges from 1% 13% on all products
– A single product paying 13%, one paying 12%, then
several paying 11%
Popular Product- Now

Index Fortifier X
–
–
–
–
–
10-year surrender charge/12% scale year one
100% @ 3% minimum gtd. surrender value - SC
Ann. PTP, Mo. AVG, Mo. PTP and a fixed
5% up-front bonus
Greater of full AV or MGSV upon death, 10% PF
w/ds year 2
– Issued to age 85
– Street level commission of 8.50%
Top Ten Product Analysis- Now
4Q2007
Rank
Carrier
1
2
3
4
5
6
7
8
9
10
Allianz
Allianz
AEIL
AmerUs
AIL
Allianz
AIL
ING
OMFN
GAFRI
Product
Endurance 15
MasterDex 10
Bonus Gold
MultiChoice Income Plus
Income Select Plus
MasterDex 5
BalancePlus Annuity 12
Secure Index Opp. Plus
Spectrum Choice Bonus
American Valor II
Surrender
Charge
Bonus
10
Forever
16
10
10
10
12
10
14
12
20%
10%
10%
5%
5%
5%
10%
5%
6%
7.5%
*Top ten list first published by Advantage Compendium/AnnuitySpecs.com 2Q2003
Street
Times in
Level
Top 10
Comp.
8.50%
9.00%
8.00%
8.50%
8.50%
9.00%
10.00%
8.00%
10.00%
6.50%
2
14
14
5
5
14
4
8
1
6
What are Carriers Doing?

Lowering Surrender Charges

Lowering Bonuses/using vesting schedules

Lowering Compensation with new product dev.

Lowering Issue Ages

Pulling non-compliant products
What are Carriers Doing?

Not developing new crediting methods

Keeping crediting methods simple

Revising marketing materials

Requiring suitability forms in all states
IA Rider Product Development

Guaranteed Minimum Death Benefits (GMDBs)
– Guarantee 4 – 5% accumulation on the DB, in exchange for
a 0.50% annual charge from the Account Value
 i.e. such as on the BPA products from American Investors
– Guarantee that beneficiaries will receive up to 200%
accumulation on premiums, less withdrawals, in exchange
for lower rates, caps, etc.
 Offered on a series of Conseco products
IA Rider Product Development

Guaranteed Minimum Withdrawal Benefits
(GLWBs)
– Guarantee annual withdrawals “for life” (at a % usually
based on client’s age), regardless if Account Value goes to
zero, in exchange for a charge
 Explicit charge as a % of the Account Value
 Lower caps, participation rates, and fixed rates in exchange for the
benefit
 Some other inherent pricing mechanism, i.e. defer product ten
years, then take out lifetime income
IA Rider Product Development

Fifteen IA carriers currently offering these benefits
– Two more currently filed or pending launch
– Only three one year ago
– Four carriers have already revised their first versions

Designs range from simple to complex and deserve
proper training
– Some charge for the rider even in the event there is no gain
– Some permanently lower the rates once lifetime income is
initiated
IA Rider Product Development

Benefit Base Bonus- credits a premium bonus on the
Benefit Base of a Guaranteed Lifetime Withdrawal
Benefit (GLWB) product; three products in the
market feature this type of bonus and riders as well
– HUGE propensity for miscommunication on this bonus, which is
not up-front
– Client cannot “walk away” with the bonus if they were to cash
surrender
– Must take income stream in order to receive bonus
– Bonuses as high as 15% presently
IA Rider Product Development

Enhanced Benefits on GLWBs provide a higher
withdrawal percentage, in the event on Long Term
Care situations
–
–
–
–
Require that rider must have been in force for five years
Annuitant must meet 2/6 ADLs
Situation must be expected to be permanent
Not available on joint life
 Where a single life payout percentage may have provided 5%
withdrawals for life for a client aged 60, this enhanced benefit
would provide 8% withdrawals for life
IA Rider Product Development

Long Term Care (LTC) riders
– Two carriers offer such a benefit today
– More carriers in the wings, due to Pension Protection Act

Benefits increase liquidity in time of need
– Client must not be able to 2/6 ADLs, and be receiving care
– Qualification period may be required (rider on IA for six years)
– Elimination period must be met (45-90 days)
– No underwriting or simplified issue
– Benefit cost differs: 0.55% or 0.27%- 2-00% based on age/sex
– Either increase value for withdrawals, or take full liquidity over # of yrs
Other Indexed Annuity Trends

Rainbow crediting methods- where you perform your
normal index crediting strategy calculation, but use a
blend of indices, and either perform a lookback, or
use a weighting of the indices
– Annual Point-to-Point or Monthly Averaging thus far
– Propensity to use international indices on these strategies
 FTSE 100
 DJ Euro Stoxx 50
 Nikkei 225
Other Indexed Annuity Trends

Rainbow crediting methods
– “Everybody’s doin’ it”
 Allianz: weighting
–
–
DJIA 35%
Lehman 35%
FTSE 20%
Russell 10%
 American Investors Life: lookback
–
–
S&P 500, Nasdaq-100, DJIA
50%, 30%, 20% to Best, Next best, Least best performing
 Aviva Life and Annuity: lookback
–
–
S&P 500, Nasdaq-100, DJIA
50%, 30%, 20% to Best, Next best, Least best performing
 ING: weighting
– S&P 500 70%
– DJ Euro Stoxx 50 30%
– Four more carriers with pending strategies
Other Indexed Annuity Trends

Ten year, 10% bonus products
– How?

Products with lower comp., higher rates
– Why?

New BPA Select products- charging clients an
explicit AV charge for indexed allocations
– This is in addition to charging for optional
GMDB/premium bonus
Overall…

Sales are down, but so are CD rates

Things should start looking better in 2008

Looks like the regulators are cleaning things up

But some carriers are trying to mess things up for the
rest of us
Overall…

Looks like by cleaning up our product development,
it is creating less problems with suitability

It looks like GLWB are beginning to drive sales…

And it is a GREAT time to be a consultant!
Any Questions?
Sheryl J. Moore
[email protected]
(515) 262-2623