Move over, double-takes. Given that fixed index annuity (FIA) sales have broken yet another quarterly record, and by a wide margin, triple-takes are in order. Hybrid indexes have something to do with this.
First, the impossible-to-ignore numbers: In second quarter 2014, FIA sales totaled nearly $12.6 billion — 8.5 percent above the industry’s prior record of $11.5 billion in fourth quarter 2013, according to Wink’s new Sales & Market Report. Compared to first quarter, industry FIA sales jumped 15.4 percent, and compared to second quarter one year ago, they shot up 36.5 percent.
Sales leader Allianz Life soared on production of more than $3.8 billion, up 204 percent from second quarter last year and up nearly 37 percent from first quarter this year.
A frequently cited reason for FIA sales records is the product’s ability to deliver upside potential (via linking interest growth to gains in one or more financial indexes) plus downside production (in the form of a floor on loss during market downturns).
However, other factors were at work too. These include “hybrid index” options, expanded distribution channels, slightly higher commissions, and market leader clout.
FIA Carriers Offering Hybrid Index Options
|American Equity Investment Life|
|Athene Annuity & Life Assurance|
|Athene Annuity & Life Company|
|Fidelity & Guaranty Life|
|Security Benefit life|
| Source: Wink’s Sales & Market Report,
2nd Quarter 2014
In second quarter, $3.5 billion of FIA sales involved premium allocation to hybrid index options, Sheryl Moore, president and chief executive officer of both Moore Market Intelligence and Wink, said in an interview.
A hybrid index is essentially an index of several other financial indexes. It is one of several types of indexes that carriers offer for use in calculating potential interest crediting to a policy.
Close to 40 of the 299 FIAs offered by eight carriers now have hybrid index options, Moore said. That’s up from a year or two ago when few such options existed. At least 10 more carriers want to offer hybrid options in the future, she said.
The growth in dollars allocated to hybrid options has been meteoric. In second quarter, 31 percent of all FIA sales premiums went into hybrid options, according to Wink. By comparison, in the same period last year, hybrid index allocations were so small that Wink did not have a separate category for hybrid indexes. (Instead, Wink assigned the hybrid index allocations that carriers did report to its Barclay’s/Lehman bond index category, which accounted for only 0.5 percent of allocations that quarter.)
It was in first quarter 2014 that the hybrid options started making industry eyelids flicker. Allocations to Barclay’s/Lehman quarter represented 20 percent of all index allocations, most of it from hybrid allocations, Moore said.
The hybrid momentum continued in second quarter, so Wink separated the hybrid and bond index allocations, with the former now representing 31 percent of allocations and the Barclay’s/Lehman, just 0.2 percent.
What’s driving the hybrid craze? The indexes are viewed as low (or managed) volatility options that carriers can offer without caps on participation rates. Since some buyers don’t like caps on growth potential, this index is being positioned as a good fit for such customers.
Some marketers have taken to portraying the hybrid index as an “uncapped strategy.” That marketing message could be a factor propelling sales too. However, Moore and other industry experts repeatedly stress that hybrid options do not represent an uncapped strategy (because carriers use spreads that effectively limit growth potential, even without caps). For that reason, they urge producers not to sell it that way.