Annuity FYI Blog

American Equity Investment Life Holding Co. had to lower their interest rates recently for the first time since 2007.  Low interest rates in this volatile financial market have been really hurting the company’s spread, so they lowered new annuity rates by .4 to .5% in October.  The difference between the interest they were paying out and that which they were receiving was too high not to make a change.  Annuities renewing after November 14 will also get interest rate reductions, according to the Des Moines Register’s “Chaos in financial markets aids American Equity, yet it will cut rates,” by Adam Belz.

But American Equity did see increasing sales of annuities, especially the fixed equity indexed annuities in which they specialize.  Sales of annuities increased every month last quarter, with a high in September of $462 million.  Their third quarter operating profits increased 50% from 2010, to $41.5 million.  Consumers were buying annuities in large numbers because of their safety and security in a volatile market.  Despite increased operating profits, American Equity had an overall loss of $13.1 million in the third quarter, prompting their decrease in annuity rates.

Written by Rachel Summit

American Equity Investment Life Holding Co. CEO Wendy Waugaman was interviewed in the Des Moines Register article “W.D.M. firm’s CEO talks of annuities, economic growth.”  American Equity has the second highest sales of fixed equity indexed annuities, just above Aviva USA and behind Allianz Life.  The company was started in 1995 and went from selling $150 million of annuities in 1997 to $2 billion in 2001.  Their revenue is now up to $28 billion, largely based on sales of fixed equity indexed annuities.  Investors look to annuities even more in volatile markets and for good reason.  If you had purchased a fixed annuity in 1998 from American Equity for $100,000; the 2010 value would have been over $160,000.  In comparison, the same investment in an S&P fund would have been worth just under $109,000.

These guaranteed interest rates make annuities very popular, especially as 401k annuities purchased with some of a retiree’s 401k plan.  Waugaman answered questions about everything from annuity basics to the inner workings of American Equity.  When asked how American Equity makes money from annuities, she says that it is similar to a bank loaning your money to other people while paying you interest.  She says that they are growing faster than other annuity companies because of their excellent customer service to both agents and investors.  After being asked about interest rates, she was honest and said that they are frighteningly low.  She is hopeful that they will gradually increase so that they can offer higher immediate annuity rates and America can come out of the financial crisis.  American Equity has hired 80 people over the last six months and they have been in every area of the business.  American Equity is poised to retain their high position in the fixed equity indexed annuities market.

Allianz Life Insurance Co. of North America introduced a new preferred distribution program last week that those left out of the program are unhappy with.  According to Darla Mercado of Investment News in the article “Allianz Preferred perks strike nerve with agents,” agents and marketing groups who are not included in Allianz Preferred are worried that they will lose clients or agents within their groups.  The program gives extra support to top sellers of Allianz’s fixed equity indexed annuity products.  Allianz Preferred offers these top field marketing organizations some special products and more support and in turn, they allow Allianz increased oversight of their organization.  Allianz says that they want to make sure the companies who represent them best are thriving and getting the resources to improve in the marketplace.

The annuity market could see some changes because of Allianz Preferred, since agents and marketing groups could look specifically for FMO’s who are part of this preferred group.  Some critics of the program think that the $75 million of Allianz annuities that FMO’s must sell to be in this preferred group is too high.  Others worry that compliance officers hired by Allianz to look into the materials related to competitors’ annuities may not be in the best interest of the consumer looking to compare annuities.  Allianz is already the top indexed annuity seller with 21% of the market and this move may make it nearly impossible for its top competitors, like American Equity and AVIVA USA, to catch them.  The 25 or so organizations who will be part of this preferred program are excited for all of the benefits, and even for the opportunity to recruit agents whose organizations are not eligible.

Fixed annuity sales increased 6% in the first quarter of this year to a level of $18.9 billion.  The Annuity News Journal article; “Sales of Fixed Annuities are Making a Comeback” by Zachary Dristol, says that sales increased in all four types of annuities.  Book value annuities increased by 12%, moving to $8.6 billion in assets.  Market value adjusted annuities increased by 7% and income based annuities increased by .8%.  While there was only a minimal .2% increase in indexed annuity products, their increases over the past year or so have been so significant that the assets are still very high.

From the fourth quarter of last year to the first quarter of this year, book value annuity assets increased by 42%.  In the same time frame, annuity sales in general increased by 7%.  Beacon Research’s CEO said that increasing annuity rates during the first quarter were likely the reason for the fixed annuity sales increase.  In comparison to fixed and variable annuities, indexed annuity products lost some ground probably just due to seasonal changes.  After the financial crisis of 2008, the annuity industry worked hard to distance itself from AIG and be seen for their guaranteed retirement income again.  The top five annuity sellers in the first quarter were Western National, New York Life, Allianz, American Equity, and Aviva.

The CEO & President of American Equity Investment Life Holding Company says that fixed equity indexed annuity products are an excellent retirement savings tool both used alone and in combination with other products.  In her CNBC guest article “CEO Blog: It’s TIme to Stop One-Sided Retirement Planning,” Wendy Waugaman says that it’s unfortunate many retirement planners only recommend stock market and investment products to their clients.  With $2 trillion lost in retirement savings in less than four years, Americans have to look for a less risky way to finance their retirement.  Fixed equity indexed annuity products protect your principal, can give you guaranteed lifetime income, and offer the possibility of earning higher interest than fixed rate investments.

Americans are looking for more guarantees and protection of their savings, which is driving the increase in fixed equity indexed annuity sales.  These indexed annuities made up half of all fixed annuity sales last year.  The author says that critics of the fixed equity indexed annuity tend to be financial planners who have a vested interest in competing products like stocks and bonds.  The arguments against the indexed annuity do not stand when researched due to a lot of misinformation in the marketplace.  There is no one size fits all investment for retirement, so looking into all alternatives is the only way to give investors the best chance at a secure retirement.  Fixed equity indexed annuity products are the best retirement option for many investors, but of course not everyone.