Limra: US Sales of Variable Annuities Up 13% in 2011 as Writers Face Living Benefit Risks
April 3, 2012 by Fran Matso Lysiak
Best’s News Service – April 02, 2012 04:56 PM
OLDWICK, N.J. – Total 2011 sales of variable annuities in the United States grew to $159.3 billion, a 13% increase from 2010 as writers continue to manage the risks on the living benefit riders they offer on these stock-market-linked retirement savings and income products, according to Limra.
Sales improved in 2011 mostly because of demand for variable annuities with guaranteed living benefit riders, “especially in the first half of the year,” said Joseph Montminy, assistant vice president of annuity research at Limra, noting the growth was driven by customers seeking to offset the stock market volatility in 2011.
But coupled with market volatility, low interest rates “also challenged insurers to cost-effectively manage” the guarantees on living benefits, Montminy said. Fourth-quarter 2011 sales were flat year over year and compared to the third quarter, sales dropped 4% to $38.4 billion, according to Limra.
MetLife Inc. (NYSE: MET) was the No. 1 seller of variable annuities in the United States, with 2011 sales of $28.4 billion, according to Limra. Capturing second place was Prudential Annuities, a unit of Prudential Financial (NYSE: PRU), with sales of $20.2 billion. Jackson National Life ranked third, with sales of $17.5 billion while TIAA-CREF took fourth place, with sales of $13.4 billion.
Rounding out the top five was Lincoln National Corp. (NYSE: LNC) with 2011 sales of $9.3 billion.
Among the most popular of living benefit riders on variable annuities is the guaranteed lifetime withdrawal benefit, according to Insured Retirement Institute. It’s a guarantee on the promise of a certain percentage — usually about 5% — of a guaranteed benefit base that could be withdrawn each year for the life of the contract holder, regardless of market performance or the actual account balance (Best’s News Service, Sept. 16, 2010). IRI tracks the GMWB as a lifetime benefit.
De-risking has been the key word since the financial crisis of 2008 and has continued since. Amid 2011’s sharply volatile equity markets, some variable annuity writers have cut policyholder benefits to reduce their own financial exposure while others have exited the market.
Some companies have managed their risk by offering a focused set of asset allocation funds, Montminy said. More recently, companies have started linking fees and rider features to changes in the markets, using asset-allocation models that automatically switch money between stocks and bonds when certain triggers are met, and offering volatility-managed programs on the separate account level, he said.
In his letter to shareholders in the company’s 2011 annual report, Steven A. Kandarian, MetLife’s chairman, president and chief executive, wrote the company re-priced its leading variable annuity product and has a plan to “reduce our VA sales to roughly $18 billion in 2012.” (Best’s News Service, March 27, 2012).
Earlier this month, Hartford Financial Services (NYSE: HIG) said it’s placing its U.S. individual annuity business into run-off and pursuing “a sale or other strategic alternative” for its individual life insurance and retirement plans businesses and Woodbury Financial, its broker-dealer subsidiary. During the height of the financial crisis, sales of variable annuities in the United States for Hartford stood at about $15 billion, according to the company.
An area to watch this year is the development of new low-cost, adviser-sold products offering living benefits, such as Transamerica’s Income Elite product, which offers an all-in insurance cost of 1.7% per annum as compared with the industry average of 2.75%, wrote Frank O’Connor. director of insurance solutions at Morningstar, in a separate write-up on the year’s results. Historically, adviser-sold products have captured around 2% of the overall VA market, with most such “simplified” annuities failing to generate significant sales, he wrote.
For now, “the broker sold, fully commissionable product is getting 98% of the business,” O’Connor wrote.
Industrywide, annuity sales in 2011 grew 7.7 % to $231.1 billion, according to Cathy Weatherford, president and chief executive officer of IRI. “These sales results demonstrate that the marketplace for insured retirement products is truly robust with a significant number of investors looking to attain lifetime income as part of their retirement strategy,” Weatherford said in a statement.
Last month, meanwhile, a majority subgroup of the National Association of Insurance Commissioners recommended to the NAIC’s “A” Committee that the controversial longevity risk-protection products dubbed contingent deferred annuities are a life insurance product that should be written by life insurers and not property/casualty insurers. These products resemble the guaranteed lifetime withdrawal benefit rider on traditional variable annuities, Felix Schirripa, chairman of the contingent deferred annuity subgroup, told Best’s News Service (Best’s News Service, Feb. 23, 2012).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)BN-NJ-04-02-2012 1656 ET #