One-third of all fixed indexed annuities are sold with hybrid indexes, which are usually designed to control volatility, according to fourth-quarter data.
Those products benchmark typical indexes, such as the S&P 500, and combine with other gauges, including proprietary indexes, to control volatility.
Companies say hybrid indexes offer choices for consumers who want growth without variability.
Critics say fixed indexed annuities already protect against volatility because they cannot drop below a zero percent return. They also fault the proprietary indexes as being opaque black boxes.
Plenty of companies seem to be doing well by offering hybrid indexes on annuities and more than 50 volatility control indexes are offered in today’s indexed annuity universe, nearly double the number two years ago, according to one estimate.
Sales of annuities with hybrid indexes rose to a record 33.3 percent of FIA sales, compared to 29.9 percent last year, according to Wink’s Sales & Market Report.
Companies Pro And Con
Companies that use the indexes say retirees and pre-retirees who have less time to make up for severe market dips find value in volatility control levers. Rather than earning 6 percent one year and zero the next, a hybrid index might limit volatility to 3 percent one year and 3 percent the next.
Merrill Lynch’s ML Strategic Balanced Index, available with some AIG indexed annuities, blends the S&P 500 index and the Merrill Lynch 10-Year Treasury Future Total Return Index with positions rebalanced semiannually and cash positions adjusted daily.
“All of the big carriers in the market have hybrid indexes and that speaks to the large allocation to these indexes,” said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc., publisher of Wink’s Sales & Market Report.
Traditional S&P Index Still Leads
Hybrid indexes may be on the rise but the traditional benchmarks – the Standard & Poor’s 500 index, the Dow Jones Industrial Average index or the Barclays Bond index – still dominate.
In the fourth quarter, 50.2 percent of indexed annuities were sold with a Standard & Poor’s 500 index, long the market’s most popular option.
In addition, 12 percent of fourth quarter indexed annuity sales went to a fixed (bond) index, Wink reported.
Overall, fourth-quarter FIA sales rose 2.3 percent to $13.6 billion compared to the year-ago period, Wink said. But over the year, FIA sales fell 7 percent to $54 billion.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]
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