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Return Comparison - Total Return vs Annual Reset 2/11
If you compare the starting value of the S&P 500 on New Year’s Day 2006 with New Year’s Day 2011 you’re up less than 1% in five years, but an annual reset index annuity would have participated in a 64% gain. An even more powerful example is starting 1/1/01 and ending 1/1/11 because the S&P 500 finished 4.74% lower, but if you applied an annual reset approach, treating negatives years as zeros, the total gain shared in is 132.35%. Yes, index annuities may limit your maximum return in a given year, but due to the reset feature still provide a very competitive return. Yes, index annuities may limit your maximum return in a given year, but due to the reset feature still provide a very competitive return.


Court Ruling May Affect VA & VUL 1035 Exchanges 2/11
In the spring of 2009 Branch Banking & Trust Company filed suit against Pacific Life [Kentucky Western District Case #3:2009cv00284] alleging that a protracted policy transfer had caused them financial damage. Specifically they said Pacific Life had breached the contract, their fiduciary duty, their duty of best execution, and their duty of good faith and fair dealing under IRS Section 1035 of the Internal Revenue Code.  

The details are the consumer owed a Pacific Life variable insurance policy. On 18 August 2008 they sent in the paperwork to transfer the cash value to a new policy at John Hancock. On 9 September Pacific Life received the 1035 exchange when the net cash surrender value was $779,818. Pacific Life responded to John Hancock the next day saying that additional paperwork was needed. On 1 October the consumer learned of this requirement, but because the cash value had fallen by over $50,000 since 9 September the consumer refused to submit the additional paperwork and demanded Pacific Life give them the $779,818 value on 9 September. Pacific Life refused. On 11 December, with the net cash value now $519,892, the consumer resubmitted the exchange paperwork and Pacific Life processed the request on that date. The following spring the consumer sued Pacific Life to recover the $259,926 that the policy had declined.

The life insurance contract says the policy will terminate on the date that a satisfactory request in writing is received at the home office. Pacific Life’s argument was that the satisfactory date is the day all of the correct paperwork is received. The consumer argued that the date is when the first written request was received and the court agreed with the consumer on 24 November 2010. 

The court said the effective date of a 1035 is the day the request is received at the home office 

The court said Pacific Life did not breach any fiduciary duty or good faith responsibility, and acted in good faith and fair dealing. However regarding the insurance contract, the court ruled against Pacific Life by saying the owner made an unconditional request to surrender. Although the transferring insurance company has every right to require that the paperwork is acceptable before 1035-ing the cash value, the cash value amount must be based on the date in which the surrender request was received.  

This isn’t over. The court has not ruled on damages and Pacific Life has appealed

If this ruling is upheld it should have a substantial impact on variable annuity and life exchanges, however, it would appear to have little effect on fixed rate or index annuity exchanges. The court did not say carriers could not continue to drag their feet in transferring funds out, it simply said the policy value needed to be that on the date when the written request was received. 

This should not affect index annuities

Since index annuity cash values do not decline the reason for this lawsuit would not have occurred. An argument could be made that delaying an exchange resulted in lost profits, but the court did not address this issue. The court decision should not speed up index annuity 1035s.  

Fourth Quarter Index Annuity Sales Slip 3/11
The Indexed Sales & Market Report 4th Quarter, 2010 shows fourth quarter 2010 index annuity sales were $8374 million compared with sales of $8770 million for the previous quarter. Third quarter sales were up 18.6% when compared with the same period one year ago. Annualized index life premium was $221 million for the 4th quarter.

The top ten index annuity carriers for the fourth quarter:

Allianz Life  $ 1,898,832,624   North American Company 359,900,000
American Equity  1,371,292,772   Midland National 332,700,000
Aviva 1,241,600,859   Lincoln National 326,573,183
Jackson National Life 388,219,980   Great American          270,906,836
ING 363,474,463   National Western Life 261,880,105

2010 Index Annuity Sales were $32,435,563,979.

Average Commission
The average agent commission was 6.

Winners & Losers
Six of the top ten carriers posted lower sales from the previous quarter. In all 13 carriers were up, 20 were down.

Recent Averaging Returns Reflect 2010 Meandering 5/11
Over the last couple of months, using a point-to-point basis, the S&P, Dow, and other indices reported double digit returns, but averaging the daily or monthly values produced annual gains around 1%. Why the huge disparity? The reason is the markets began to dip in April 2010 and didn’t recover until October. Indeed, the stock market gain over the last 6 months is just about the same as the gain over the last 12 months. However, this negative effect is ending. If the indices stay the same, or even dip a little bit in May, crediting methods using averaging will again be working off of double digit gains.
And if the indices do dip again this year averaging could look very good. As an example, if the indexes drop 5% each month from now until autumn an annual point-to-point look would show a loss by September end, but averaging results in strong returns in years ending from now until October.

Consumer Federation Confronted On Unsupported FIA Allegations 6/11
In a 3 June press release the Consumer Federation of the Southeast warned teachers about investing in "unvetted index annuities". "America’s educators are being targeted and are increasingly being sold investments that aren’t properly vetted and this can turn out to be a financial disaster" said Walter Dartland, executive director of the Consumer Federation of the Southeast. The poorly written press release seems to be negative about index annuities, but talks about funds and investment brokers in the same breath, so it's all rather confusing. However, the negative index annuity comments were echoed by Barbara Roper, director of Investor Protection for the Washington lobbyist Consumer Federation of America that calls indexed annuities with high fees “one of the most abusively sold products on the market today." However, when faced with evidence to the contrary by Arthur D. Postal of National Underwriter it appears that the Consumer Federation apparently has no evidence of index annuity sales abuses at all. 

Postal presented evidence from The Advantage Compendium showing that in 2010 there were 114 securities complaints for every one index annuity complaint, and that, closer to home, based on a study of actions taken against Florida financial services professionals, that only 15 out of 1791 involved index annuities (Advantage Compendium, 2010). In response to the appearance of results taken from actual data readily available from public records Dartland said his "concerns were prospective, not retrospective" seemingly making the pronouncement that he is able to predict the future. In an attempt to defend his actions, Dartland argued that most people do not complain - which raises the question of how he knew there was a problem in the first place. Dartland is quoted as saying “EIAs are extremely complex investment products and can contain many detrimental features such as hidden penalties, costs, fees and massive, multi-year surrender charges" however, every annuityowner receives a complete contract detailing any and all penalties, costs, or fees and their right to rescission - important facts that should be known before one comes out with unsupported allegations that are quickly disproved.

Quarterly Index Annuity Sales Drop - Down 15% 6/11
Index Annuity sales for the first quarter of 2011 were $7.1 billion according to results released from LIMRA and Beacon Research, off 15% from the previous quarter. This is the second consecutive quarterly decline. First quarter sales were up about 5% from the first quarter of 2010, however, first quarter 2010 sales were the lowest since 2008, so the bar was low. Based on our research this was the greatest quarter-to-quarter decrease in index annuity sales ever - in both dollars and percentages - so it is a significant event.

The Indexed Sales & Market Report 1st Quarter 2011 shows annualized index life premium was $195 million for the 1st quarter and shows the top ten index annuity carriers for the first quarter:
Allianz Life  $ 1,507,202,697   Lincoln National 378,494,000
American Equity  1,174,915,617   Midland National Life 339,200,000
Aviva 842,341,631   Jackson National Life 325,572,548
North American Company 401,000,000   Great American          310,986,636
ING 382,383,966   National Western Life 222,764,079

Average Commission
The average agent commission was 6.

Winners & Losers
Five of the top ten carriers posted lower sales from the previous quarter. In all 16 carriers were up, 17 were down.

The main reason for the decline is low caps. I have talked with many agents this spring that have told me that their sales are down, and they believe the reason is because it's hard to get someone to buy an annuity when the interest cap is 3% or 4%. The exception I found was with some agents in banks, who are having success in converting 1% CD owners into index annuity owners. The low caps combined with a still rising stock market has also cooled interest from the broker/dealers I've spoken with, and they have returned to selling variable annuities. 

2nd Quarter Index Annuity Sales Up 16% 9/11
quarter 2011 index annuity sales were $8273 million compared with sales of $7141 for the previous quarter a  16% increase and were down 1% from second quarter 2010 sales. Index life sales were up 17% from the previous quarter and up 35% from a year ago according to’s Indexed Sales & Market Report 2nd Quarter, 2011.

Allianz Life  $ 1,819,691,648   Lincoln National 480,402,000
Aviva  1,075,093,427   ING 410,461,953
American Equity  945,359,127   Midland National Life 397,700,000
Great American 518,341,634   Jackson National Life         345,175,323
North American Company 487,400,000   National Western Life 244,014,903

Average Commission
The average agent commission was 6.

Winners & Losers
Nine of the top ten carriers posted higher sales than the previous quarter. In all 24 carriers were up, 9 were down.
Principal, Security Benefit and Symetra had initial sales in the second quarter.

Project Confidence 9/11
Today’s economy and financial markets remind me of 1979 to 1982. Then a weak recovery was bedeviled by fears of another recession, there was high unemployment, interest rates were at impossible levels, and it seemed easier to do nothing, because any decision you made might be wrong. People were looking for someone that seemed to know how to deal with this uncertainty and the same holds true today.

You can’t predict the future, but you can offer a course of action that offers protection against much of the uncertainty. Tell consumers you offer certainty by ensuring they will always earn at least a minimum rate of interest, that both their principal and earned interest is protected from another market crash, that you can tell them exactly what income they will receive for a lifetime whether they begin receiving it in a year or ten years, and tell them the only uncertainty is in how much they might earn and not in how little.

If a person does nothing today they are like a rudderless boat adrift in the financial tide and likely to crash among the rocks, but an index annuity ensures the boat will remain afloat, always moving forward, with the ability to navigate towards faster currents. If only index annuities had been around 30 years ago... but they are available today.

Washington Chorus 10/11
Will Rogers never said, “I'm not as concerned about the return on my money as I am the return of my money” but he did say "There is two things that can disrupt business in this country. One is war and the other is a meeting of the Federal Reserve" (April 2, 1929).

I’ve been coming across Will Rogers quite a bit as I go back to try to see if these are unprecedented times. The answer is no, financial history is a never ending cascade of wise and poor decisions in Washington by regulators and politicians. Today is simply another chorus of a very long song. The good news is eventually the economy rights itself, probably because we stop listening to Washington  and simply start buying again.

3rd Quarter Index Annuity Sales Up 12/11
I estimate index annuity sales to be $8.7 billion for the third quarter based on an analysis of results reported from three annuity sales tracking services. This compares with sales of $8.3 billion for the previous quarter and is even with third quarter 2010. I estimate total fixed sales to be $19 billion, so FIAs were 46% of all fixed annuity sales. If you deduct the $2.2 billion of immediate annuity sales you find fixed deferred annuity sales were $16.8 billion in the third quarter. On that basis FIAs represent 52% of fixed deferred annuity sales. VA sales were an estimated $40.2 billion making total third quarter annuity sales $59.2 billion, down from the estimated $61.4 billion of second quarter annuity sales.

Allianz Life  $ 1,555,766,813   North American Company 437,500,000
Aviva  1,354,245,210   Jackson National Life 427,436,893
American Equity  1,056,020,432   Midland National Life 413,716,085
Great American 602,085,143   Security Benefit Life        351,658,249
Lincoln National 461,979,000   ING 311,048,232


Copyright 1998-2012 Jack Marrion, Advantage Compendium Ltd., St. Louis, MO (314) 255-6531. webmaster at All information is for illustrative purposes only, does not provide investment or tax advice. No index sponsors, promotes, or makes any representation regarding any index product. Information is from sources believed accurate but is not warranted. Advantage Compendium neither markets nor endorses any financial product. Copyright 1998-2012 Jack Marrion, Advantage Compendium Ltd., St. Louis, MO (314) 255-6531. webmaster at All information is for illustrative purposes only, does not provide investment or tax advice. No index sponsors, promotes, or makes any representation regarding any index product. Information is from sources believed accurate but is not warranted. Advantage Compendium neither markets nor endorses any financial product.