Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
By Cyril Tuohy
What does Des Moines have on Hartford and London? Indexed annuities, that’s what. In fact, Des Moines, already a worthy contender for the nation’s top life and health insurance hub, is in a league of its own when it comes to indexed annuities.
Consider the following: American Equity Investment Life, Aviva Life & Annuity, EquiTrust Life, Midland National Life, ING, North American Co., The Principal Life Insurance, Farm Bureau Life, all companies either based or having annuity operations in Des Moines-West Des Moines, have racked up more than $7.8 billion in indexed annuity sales in the first quarter of this year, according to first quarter statistics by Wink’s Sales & Market Report.
Together, those companies control more than 35 percent of the indexed annuity market, according to Wink’s. Indexed annuities are insurance contracts in which yields depend on a specific stock market index.
So how did Des Moines — or more precisely the Des Moines-West Des Moines metropolitan statistical area — get to be the world’s indexed annuities capital, anyway?
“Iowa’s premium tax rate is very competitive,” indexed annuity expert Sheryl J. Moore, president and chief executive officer of Moore Market Intelligence, said in an interview with InsuranceNewsNet. “As a result, insurance companies have flocked here.”
Other big insurance underwriters and brokers making their home in or around Des Moines include Allied Insurance, Grinnell Mutual Reinsurance and the broker Marsh, to name a few. By one count, as many as 212 insurance companies are registered in Iowa, and with Des Moines being the capital, it stands to reason that many companies are in the Des Moines-West Des Moines metropolitan area.
In the past five years, Aviva, insurance agency Bearance Management Group, CoOpportunity Health, Continental Western, The Principal Financial Group, Sammons Financial/Midland National Life, Sammons Retirement Solutions and Wellmark Blue Cross Blue Shield of Iowa have either expanded or relocated to Des Moines, according to the Greater Des Moines Partnership, which promotes business in the area.
The city’s highly skilled workforce, the lower cost of living and the state’s economic incentives to keep companies in Des Moines play a role, according to local insurance experts. Take the premium tax, for example.
Only five states — Oregon, Illinois, New York, South Carolina and Wyoming — tax life premiums at lower rates, and only six states — Oregon, Utah, Wisconsin, Illinois, New York and Wyoming — tax health premiumsat lower rates, according to statistics issued by the Iowa Insurance Division.
The 1 percent tax was lowered from 2 percent effective in 2006 for life, and in 2007 for health and property/casualty, the Insurance Division said.
“We can make the case here in Des Moines that if you are here in the insurance business, especially now with communications and transportation, we can make the case that we are the best place in the world for insurance,” Jay Byers, chief executive officer of the Greater Des Moines Partnership, said in an interview with InsuranceNewsNet.
Low interest rates, too, have made life more expensive for companies sensitive to costs, and East Coast insurance centers like New York and Hartford simply cannot compete with Des Moines when it comes to the cost of living.
Recent transactions involving Aviva USA show how businesses with insurance interests are willing to remain in Des Moines.
Aviva USA, which was bought by Bermuda-based Athene Holding Ltd. from British insurer Aviva plc, will be folded into Athene’s U.S. business and operations moved to West Des Moines under the Athene USA name, according to the Des Moines Register.
Contingent on that deal, Athene USA will sell Aviva Life and Annuity Co. to Commonwealth Annuity and Life Insurance, a subsidiary of Global Atlantic Financial. “This sale is consistent with Athene’s focus on becoming the leader in the fixed annuity segment of the retirement savings market,” Athene chief executive officer Jim Belardi said in a statement.
Ever since insurance companies sprang up to protect goods flowing up and down the Mississippi and Missouri rivers and their tributaries, the industry has played an important role in the economic development of Iowa and Des Moines.
Local business and political leaders saw it then, and they recognize now that it makes sense to continue to attract as many insurers as possible, particularly with the managerial, technical and distribution talent that has sprung up to support life, annuity and health underwriters.
“It’s been our strategy in the past, and it will be our strategy moving forward to concentrate that cluster even more,” Byers said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@innfeedback.com.
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