Equity Index Annuities Versus Variables

The market share of equity index annuities (EIAs) among fixed annuities has nearly trebled in the last three years, growing from 11% in the first quarter of 2002 to 31% today. Because of equity participation, EIAs also compete with variable annuities, and a new study looks at the future of these fixed annuities.

"Gauging the Equity-Indexed Annuity as Competition and Complement to the Variable Annuity Market" is a joint effort of Financial Research Corp. and Beacon Research, which conducts the Fixed Annuity Premium Study.

"Because Baby Boomers are willing to limit their upside potential if it means not worrying about the downside, equity-indexed annuities have gained in popularity, particularly in today's low-interest-rate environment," said Lisa Plotnick, vice president at FRC and author of the study. "Yet, EIA manufacturers face a number of challenges in sustaining this growth, including regulatory concerns, the availability of less complicated alternative products and selling the product in changing financial markets."

Jeremy Alexander, president and CEO at Beacon, pointed out that many agents who sell EIAs are primarily focused on fixed annuities, so they are more likely to gravitate back to traditional fixed annuities once interest rates rise again.

The report identifies strategies and product ideas to help sustain EIA growth; compares EIAs to other products and features, including other fixed annuities, variable annuities, living benefits and other principal protection strategies like bond laddering; looks at the marketing and competitive environment; and evaluates the future of EIAs, according to research and the opinions of industry executives.

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