Morningstar: First-Quarter US Net Sales of Variable Annuities an Estimated Loss of $1.1 Billion
June 16, 2014 by Fran Matso Lysiak
WASHINGTON – As first-quarter 2014 total sales of variable annuities in the United States dropped 3.2%, net sales were negative, coming in at an estimated loss of $1.1 billion, according to Morningstar Inc. However, this represented a narrower loss in flows than the $2.8 billion in the fourth quarter of last year, Morningstar said.
Total sales in the opening quarter of this year dropped to $33.5 billion, according to Morningstar and the Insured Retirement Institute, which partner with each other on the data.
Net sales show whether “new money” is being invested into variable annuities instead of people simply exchanging their money from one contract to another.
Despite 32% growth in the equities markets in 2013, total sales fell 1% last year to $145.3 billion, according to Limra Secure Retirement Institute, which separately releases data. Last year represented the second straight year of year-over-year declines. Following a trend for the past few years, sales of these stock market-linked retirement savings and income products aren’t tracking with the equities markets anymore, Limra previously said.
By company, capturing first place in sales was Jackson National Life Insurance, a unit of the United Kingdom’s Prudential plc, with first-quarter sales of nearly $6.4 billion, according to Morningstar.
Coming in at No. 2 was TIAA-CREF, with sales $3.1 billion. TIAA-CREF is a large manager of employer-sponsored 403(b) plans, which are defined-contribution retirement plans for employees in the education and other nonprofit fields. TIAA-CREF, which consists of the Teachers Insurance and Annuity Association and its subsidiary, TIAA-CREF Life Insurance Co., combined with TIAA’s sister organization, the College Retirement Equities Fund, forms one of the largest retirement systems in the country. Contract holders may transfer funds from TIAA to CREF or to another employer-approved funding vehicle but only in the form of a 10-year annuity payout.
In the overall variable annuity market, there were $22 billion in qualified sales and $11.5 billion in non-qualified sales, according to Morningstar.
Tracking closely behind in third place was Lincoln Financial Group, the marketing name for Lincoln National Corp (NYSE: LNC), with sales of $3.07 billion. Also following closely behind at No. 4 was American General Life/Variable Annuity Life Insurance Co., with nearly $3 billion in sales. American General Life Insurance Co., and VALIC, are both companies of American International Group (NYSE: AIG).
Rounding out the top five was Prudential Financial (NYSE: PRU), with sales of $2.3 billion, according to Morningstar.
Net assets of variable annuities continued to reach new all-time highs, closing the quarter at $1.88 trillion, according to Morningstar.
Election rates for guaranteed living benefit riders were 79% (when available), according to Limra. Increased focus on accumulation and tax deferral, and changes to these riders, impacted election rates.
Randy Freitag, chief financial officer at Lincoln Financial, recently said at the Deutsche Bank Global Financial Services Investor Conference that the company is focused on trying to bring down the percentage of its sales that come from products with longer-duration guarantees and changing its earnings mix as the company prepares to launch a new variable annuity without a guarantee later this year.
About three years ago, 90% of Lincoln’s sales were on variable annuities with living benefit guarantees, Freitag said. Ultimately, Lincoln wants to get to 30% of its overall sales coming from variable annuities that don’t feature a living benefit guarantee. To do that, the company is rolling out a product toward the middle of this year that is more investment- driven, tax deferral-driven, Freitag said. With this variable annuity, there will be several different investment options wrapped into the underlying separate accounts that will offer investors access to alternative hedge funds and private equity, he said.
First-quarter VA sales fell 3% — but to a higher $34.2 billion, Limra separately said, which noted a shift in the annuity market. In the first quarter of 2013, sales represented 68% of the total market share. A year later, sales make up only 59% of the total market.
In last year’s first quarter, the top five companies in sales were Jackson National, Prudential Financial, MetLife, TIAA-CREF and Lincoln Financial, according to Morningstar.
Industrywide, sales of all types of annuities rose 13.1% to $56.1 billion, according to IRI. “Sales of all types of fixed annuities soared well above first-quarter 2013 levels, achieving year-over year sales growth ranging, depending on the product, from 38% to nearly 155%,” said Cathy Weatherford, president and chief executive officer of IRI, in a statement.
Jackson National Life Insurance Co. currently has a Best’s Financial Strength Rating of A+ (Superior).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
