US Sales of Variable Annuities Down 4% in First Quarter
June 4, 2013 by Best's News Service
WINDSOR, Conn. – First-quarter U.S. sales of stock market-linked variable annuities declined to $35.5 billion, a 4% drop from the same period in 2012, according to LIMRA. The opening quarter of 2013 represented the sixth straight quarter of year-over-year declines.
Sales “continue to struggle despite sustained equity market gains,” said Joseph Montminy, assistant vice president and director of annuity research, LIMRA, in a statement.
However, assets again reached a high water mark, rising 4.6% to $1.7 trillion from $1.6 trillion at the end of 2012, wrote Frank O’ Connor, product manager of the Annuity Research Center at Morningstar Inc. in a separate note on the results. Assets under management in variable annuities are now 14% higher than the pre-financial crisis high of $1.51 trillion reached in the third quarter of 2007, he wrote.
Capturing first place in the first quarter was Jackson National Life Insurance, a unit of the United Kingdom’s Prudential plc, with sales of nearly $4.6 billion, according to LIMRA.
Jackson National Life is one of the largest U.S. writers of individual annuities, having achieved a top-three position for variable annuity sales and net flows in recent periods, according to BestLink, A.M. Best Co.’s online financial system. With the exception of 2008, Jackson National has delivered double-digit sales growth and strong U.S. statutory capital generation and GAAP operating earnings. Jackson National also has strong asset/liability management capabilities, in particular the effective hedging of most of its variable annuity guarantees, which has protected the company’s capital position throughout the recent financial crisis.
However, the company remains less diversified than many of its similarly rated peers due to a heavy concentration in retail and institutional annuities, according to BestLink. In addition, Jackson National’s variable annuity portfolio exposes it to equity market risk as a result of the benefit guarantees sold with those products, and the risk from lower fee income during market downturns.
Prudential Annuities Life Assurance Corp., part of Prudential Financial (NYSE: PRU), came at No. 2, with first-quarter sales of variable annuities at nearly $4.2 billion. MetLife (NYSE: MET) ranked third, with sales of $3.5 billion and Lincoln National Corp. (NYSE: LNC) took fourth place, with sales of $3.158 billion. TIAA-CREF, however, tracked closely behind Lincoln with sales of $3.155 billion to come in fifth place, according to LIMRA.
A variable annuity, which feature tax deferral on earnings, is a contract between a policyholder and an insurance company under which the policyholder makes a lump-sum payment or series of payments, according to the U.S. Securities and Exchange Commission. In return, the insurer agrees to make periodic payments to the policyholder starting immediately or at a future date. The policyholder can choose to invest their purchase payments in a range of investment options, which usually are mutual funds. The value of account will vary, depending on the performance of the investment options.
De-risking has been the key word for the industry since the financial crisis of 2008. Amid volatile markets, some writers of these retirement savings and income products have cut policyholder benefits, raised various fees or scaled back sales to reduce their own financial exposure. Others have completely exited the market. Companies are offering limited, less risky funds in policyholders’ separate accounts, according to Montminy. These include dynamic asset allocation programs that automatically re-balance within the product, which have become more popular over the past year, he said last summer (Best’s News Service, Aug. 30, 2012).
As part of its ongoing shift away from capital-intensive products, MetLife, for example, recently said it plans to reduce sales of variable annuities by 41% this year from 2012 levels (Best’s News Service, May 31, 2013).
Despite stock market growth in 2012, total sales of variable annuities last year decreased to $147.4 billion, a 7% decline from 2011, according to LIMRA.
Jackson National Life Insurance Co., Prudential Annuities Life Assurance Corp., MetLife and Lincoln currently all have a Best’s Financial Strength Rating of A+ (Superior). TIAA-CREF currently has a Best’s Financial Strength Rating of A++ (Superior).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com) BN-NJ-06-03-2013 1653 ET #
