VA sales strong in 2006; expected to remain robust

Apr 9, 2007 @ 12:01 am

By Gary S. Mogel

NEW YORK — As long as the stock market keeps rising, and baby boomers keep getting older, variable annuity sales should continue to be robust, industry observers say.

VA sales were up in the fourth quarter and for 2006, compared with year-earlier results, according to a report released in March by LIMRA International Inc. in Windsor, Conn. Sales were $41.3 billion for the quarter and $160.6 billion for the year.

The National Association for Variable Annuities in Reston, Va., late last month reported similar results.

According to its figures, VA sales for the fourth quarter totaled $40.4 billion, a 17.2% increase from those of the year-earlier period. Sales for all of 2006 were $157.3 billion, an 18.2% increase from 2005’s $133.1 billion.

One possible reason for the surge: Companies are lowering commissions and fees to increase VA sales, according to an executive at an insurer that doesn’t charge commissions.

Meanwhile, fixed-annuity sales decreased 1.1% to $16.5 billion in the fourth quarter and 3.3% to $70.9 billion for all of 2006, compared with year-earlier figures, according to a March study by Beacon Research Publications Inc. in Evanston, Ill.

In a top 10 shuffling, two insurers moved up two slots in LIMRA’s overall annuity rankings: Hartford Life Inc. in Simsbury, Conn., went to fourth, from sixth, and Prudential Financial Inc. of Newark, N.J., moved to eighth, from 10th.

Insurers’ annuity sales success often stems from developing products sought by the retirement market or from forging new distribution alliances, said Eric Sondergeld, corporate vice president of LIMRA. For instance, New York Life Insurance Co. moved up one position — to 14th — by increasing its emphasis on lifetime-income products, he added.

Part of the VA sales increase was attributable to Section 1035 exchanges of one annuity for another from a different insurer — as opposed to new money entering the market — but it was impressive growth nonetheless, Mr. Sondergeld said.

The LIMRA report didn’t break down the increases attributable to exchanges and new money. Industrywide, about 85% of VA sales are exchanges, said Mitch Politzer, president of First Ameritas Life Insurance Corporation of New York in Suffern.

The 1035 exchanges indicate that many clients are “upgrading” their variable annuities to include better guarantees and other new features, Mr. Sondergeld said.

Fees a factor?

Insurer executives differ on whether higher VA sales were sparked by reductions in fees or commissions.

“There is no demand in the VA market for lower fees and commissions,” said Bill Miller, chief sales officer of AXA Financial Inc. in New York. “The costs of other investment products — such as hedge funds and separate accounts — are in scale with VAs.”

Companies are lowering commissions and fees to increase VA sales, said Mr. Politzer, who heads a low-fee, no-load insurer that doesn’t pay commissions. “If [First Ameritas’ competitors] believe in low fees, then why don’t they go no-commission?” he asked.

Advisers shouldn’t be accepting commissions; they should be charging clients fees for managing assets, Mr. Politzer added.

“We have seen some large broker-dealers and banks move to lower-fee and lower-commission products, and we are happy to accommodate that,” said Rob Scheinerman, senior vice president of AIG SunAmerica Retirement Markets Inc. in Los Angeles. “We offer variable annuities at different costs to fit into the strategies of our distribution partners.”

“We always had products on the lower end of the fee and commission structure,” said David Giertz, president of the bank channel for Nationwide Financial Services Inc. in Columbus, Ohio. Therefore, the company doesn’t need to reduce costs, he added.

The main culprits driving down fixed-annuity sales were stagnant interest rates, clients’ desire to participate in the rising stock market and slumping equity index annuity sales.

EIA sales were down 6.8% to $25 billion for the year, according to Beacon Research. Many in the industry are reluctant to sell these annuities until their regulatory future — federal versus state — finally is decided, observers noted.

“Fixed annuities had a hard time competing with bank certificates of deposits, as well as variable annuities with guarantees and other equity-based investments,” said Jeremy Alexander, Beacon’s chief executive. But sales were “relatively strong,” he added, given the unfavorable economic environment for fixed annuities.

The rising market in stocks and stock funds in which variable annuities invest — along with the growing popularity of the guaranteed living benefits that ensure baby boomers an income throughout retirement — are key VA sales drivers, Mr. Sondergeld said.

“With more people having to take responsibility for their retirement due to uncertainty about pensions and Social Security, variable annuities will continue to be a popular investment vehicle,” Mr. Scheinerman said. “Variable annuities should be strong in the massive [individual retirement account] rollover market, as well as for non-qualified savings,” he said.

“If the stock market remains high, and interest rates remain low, 2007 will be just as good as 2006 for VAs,” Mr. Politzer said.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Oct 17

Conference

Best Practices Workshop

For the fifth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video

Consuelo Mack WealthTrack

Robert Kleinschmidt: How the markets have changed in the age of Trump

When Donald J. Trump was elected president, it changed investors' outlook and generated new market momentum, according to Robert Kleinschmidt, president and CEO of Tocqueville Asset Management. But can the market continue to go up?

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

HighTower faces pressure to let investors cash out

After an IPO planned for last year didn't happen, the company could opt to satisfy its backers with a sale.

Jerry Schlichter's fee lawsuits have left an indelible mark on the 401(k) industry

After a decade of litigation, fees are lower and retirement plans are more transparent. But have the lawsuits gone too far?

10 best financial adviser jokes

How many financial advisers does it take to screw in a lightbulb?

With margins crashing, broker-dealers look to merge: report

Increased regulation is straining profit margins among broker-dealers, sending many of them into the arms of their bigger brethren.

Hackers may have profited from SEC breach

The hack of the agency's Edgar filing system occurred in 2016, but the regulator didn't conclude until last month that the cybercriminals may have used their bounty to make illicit trades.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print