Morningstar: US Sales of Variable Annuities Flat in Third Quarter; ‘Investment Only’ Trend Continues
December 31, 2014 by Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com
WASHINGTON – Total third-quarter 2014 U.S. sales of variable annuities were essentially unchanged from the same period a year ago, coming in at $35.2 billion, according to Morningstar and the Insured Retirement Institute. Sales “have remained stable over the past eight quarters, and the third quarter was no different,” John McCarthy, product manager, annuity solutions at Morningstar, said in a statement on IRI’s press release. IRI partners with Morningstar on the data.
Separately, Limra’s Secure Retirement Institute said sales of individual variable annuities fell 1%, totaling $35.5 billion. Year-to-date, sales of these stock market-linked retirement savings and income products declined 3%.
“Carriers still appear to be strategically managing their VA volumes and focusing on developing non-benefit, ‘investment only’ offerings to help investors take advantage of the tax-deferred benefits of variable annuities,” McCarthy said. The investment-only trend continued, with Nationwide releasing this type of product in July, wrote McCarthy in a separate write-up on the quarter’s results.
Many of the top sellers are focusing on diversifying their guaranteed living benefit business, Limra said. In the second quarter, a few of the top companies entered the market with “accumulation-focused” product without a guaranteed living benefit rider, Limra said.
Keeping first place in the third quarter was Jackson National Life Insurance, with sales of $5.68 billion and a 16.3% market share, according to Morningstar.
Advancing to second place from fourth in the second quarter were American General Life/Variable Annuity Life Insurance Co. , with third-quarter sales of $3.45 billion. American General Life and VALIC are part of American International Group.
Dropping to third place from second was Lincoln Financial Group, the marketing name for Lincoln National Corp. with third-quarter sales of $3.34 billion. Dropping to fourth place from third was TIAA-CREF, with sales of $3.02 billion.
Rounding out the top five and replacing Prudential Financial, which ranked fifth in the second quarter, was Aegon/Transamerica, with third-quarter sales of $2.87 billion, according to Morningstar. Prudential Financial dropped to sixth place, with sales of $2.55 billion.
The quarter “was not heavy on activity, but we saw a continuation of trends established earlier in the year, and a solid indication that benefit levels will stand pat despite the current 10-year U.S. Treasury interest rate levels,” McCarthy wrote.”Perhaps most noteworthy is what we did not see: with the 10-year treasury ending the quarter yielding 2.52%, down roughly 0.50% for the year, we did not see a heavy pullback in benefit levels.”
However, net flows “dipped into negative territory” in the third quarter because of redemptions, including withdrawals under living benefits and death benefit payments, McCarthy said in the statement.
Morningstar also foresees investment-only variable annuity issues in the pipeline via MetLife, Principal Financial and American General, as well as an enhancement by Midland/Sammons, McCarthy wrote. “This follows the second quarter IOVA releases by Great-West, Lincoln, and Prudential.”
Sales of all types of annuities dipped 1% to $56.9 billion, according to IRI, which partners with Beacon Research on fixed annuity data. The market “continues to innovate,” said Cathy Weatherford, president and chief executive officer of IRI, in a statement.
According to Limra’s data, total U.S. individual annuity sales fell 2% to $58.2 billion. “Throughout the year, fixed annuities have been the primary driver of overall annuity growth,” said Todd Giesing, senior analyst, Limra Secure Retirement Institute Annuity Research, in a statement. The 50 basis-point drop in interest rates since the start of 2014 “has dampened interest in fixed products pulling down third quarter sales.”
In the first nine months of this year, total sales rose 6% to reach $177.7 billion, Limra said.
