Nationwide Vaults To The FIA Leaders Table

By Linda Koco

Fixed index annuity sales roared to another record in third quarter 2015. The period produced some surprises too, such as a new carrier at the leadership table, a surge in FIA sales at banks, and a further dip in average compensation.

The quarterly total closed at $13.5 billion, up nearly 21 percent from the prior record set in second quarter 2014, according to Wink Inc.

In addition, on a year-to-date basis, indexed sales were greater than they have been in any full year with the exception of 2013 and 2014, the product researcher said.

The surprises lurking in the FIA data included Nationwide’s breathtaking growth in sales.

Nationwide pole-vaults to five

The carrier pole-vaulted to fifth place on Wink’s third-quarter FIA sales ranking. This was based on Nationwide’s FIA sales of nearly $776 million. That is up from 15^th place just one quarter earlier and up from 22^nd place in the third quarter last year.

The other sales leaders for the quarter were names more commonly found in FIA leadership roles. In first place was Allianz Life, which surpassed $2 billion, though with a slight (4 percent) decline from second quarter. This was followed American Equity Companies, on sales of more than $1.8 billion; Great American Insurance Group, on sales of nearly $1.2 billion, and AIG, on sales just over $1 billion.

One of Nationwide’s FIAs — the Nationwide New Heights 12 — even made Wink’s list of top 10 FIA products overall, ranking in sixth place.

Meanwhile, first-place on the same list went to the Allianz 222 Annuity. Second and third place went to FIAs from American Equity, fourth place to another Allianz FA and fifth place to a Great American FIA.

On a year-to-date basis, Nationwide’s performance was a bit less jaw-dropping but still noteworthy. According to the Wink numbers, Nationwide came in 11^th place on sales of nearly $1.2 billion for the first nine months. That’s up from 23^rd place one year ago.

The backstory

Several reasons are behind Nationwide’s third-quarter seat at the leaders’ table, according to Sheryl Moore, president and CEO of Wink and of Moore Market Intelligence.

A key factor is the distribution that Nationwide is using for its New Heights FIA product line, Moore told InsuranceNewsNet. One element of this is Annexus, a company with which Nationwide partnered for design and distribution of its New Heights FIAs. Annexus sells the FIAs on a proprietary basis through 13 insurance marketing organizations, Moore said.

But Nationwide also distributes its FIAs through its own affiliated agency force as well as through independent distributors and bank and wirehouse channels.

That multi-channel approach enabled the company to reach a variety of customers and demographic groups that may be interested in FIAs.

Annexus has relevant experience in both design and distribution, Moore added. She noted that it previously developed a similar FIA for Athene USA. Today, the Nationwide products are competing with the Athene products, she said.

Another influence is Nationwide’s national branding and top financial ratings. This appeals to distributors and customers, Moore said.

In addition, in June 2015, Nationwide added a hybrid index option — the J.P. Morgan MOZAICS — to its New Heights FIAs. J.P. Morgan is also well-known national brand, and the combined brand recognition of Nationwide and J.P. Morgan has helped the products attract attention, Moore said. “The New Heights FIA has an attention-getting guaranteed lifetime withdrawal benefit, too.”

Banks versus independents

Another eye-catcher in the third-quarter data is the continued growth in the proportion of FIA sales produced in banks, along with the decline in percentage delivered by independent agents.

In the third quarter, nearly 19 percent of the FIA sales came through the bank channel, according to the Wink data. That was up from more than 10 percent in second quarter and more than 11 percent in the same period last year.

Meanwhile, the independent agent channel produced nearly 59 percent of FIA sales in third quarter. This was down from 70 percent in second quarter and from 79 percent in third quarter last year.

Independent agents remain the top distribution channel for FIAs, however. This is the position they’ve held since FIAs debuted in the mid-1990s. Given the substantial growth in industrywide sales this year, the overall production in the independent channel continues to be hefty.

In comparing the bank versus independent sales trend, Moore said she believes the bank sales are being made to customers that independent agents do not often reach. This means banks are helping to grow the FIA business in new markets. This started after the last recession. Back in third quarter 2008, banks accounted for only about 4 percent of the industry FIA production total of $6.8 billion, according to Wink figures. It wasn’t until more recent years that banks ramped up on FIAs.

Many industry professionals attribute the ramping-up to the prolonged low interest rate environment. This has spurred banks to offer customers FIAs as an alternative to low-yielding bank certificates of deposit. Moore predicts that banks will reduce their FIA production once CD rates start rising to more historically normal levels.

Commissions decline

One more stand-out figure in the new Wink data is that average weighted FIA commissions have declined — again. In third quarter, they dropped to 5.52 percent of premium, down 0.3 percent from quarter.

The average weighted commission is also the lowest it has been for all quarters in the last 10 years. The previous low was 5.6 percent in fourth quarter 2013. The 10-year high was 8.4 percent, back in third quarter 2005.

The decline doesn’t mean a lot of producers are seeing cuts. According to Moore, it reflects the growth of FIA sales in banks and broker/dealers more than anything else. Those two channels traditionally use FIAs that have shorter surrender charges and lower commissions than FIAs sold in the independent agent channel. As these two channels have increased their overall sales, their comparatively lower commissions are bringing down the industrywide weighted average, she said.

But producers in the independent agent channel have continued to receive commissions that are near or at 8 percent, depending on product, selling contract and other factors. “Also, a lot of ‘commission specials’ have been going on in that channel, as companies try to attract year-end sales,” Moore said, so some independents may see increases.

The quarter as a whole

As a whole, FIAs had a “fantastic” third quarter, Moore said. She termed the performance “amazing,” in view of the fact that interest rates have continued at historically low levels, and that the products have more conservative designs than they did several years ago. “Compared to bank CDs, these products are very competitive,” she said. “That’s why the banks are selling FIAs as much as they are.”

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].