Changes are on the horizon for Lincoln National Corp. as the company sets its sights on moderating variable annuity volumes.
The first quarter was strong for variable annuity sales at Lincoln. The company picked up $2.9 billion in variable annuity deposits, up 35% from the year-ago period. That's down just slightly from the $3 billion in VA deposits the company received during the fourth quarter of 2012.
Lincoln, a solid fifth-place contender among variable annuity sellers, has been benefiting from the decisions of companies such as Prudential Financial Inc. and MetLife Inc., to turn their focus away from VAs amid interest rate risk and the long-dated liabilities tied to income benefits.
“Sales were a little elevated in the fourth quarter of 2012, and that was due to a number of things,” said Brian Kroll, senior vice president of annuity solutions at Lincoln. He cited competitors' product changes as one of those factors. Notably, around that time last year, Jackson National Life Insurance Co. decided to halt 1035 exchanges into its own VAs.
Lincoln has a few updates of its own to help stem the flow of new VA dollars, Lincoln chief executive Dennis R. Glass noted on a conference call with analysts today. Changes coming this month include cutbacks of 50 to 100 basis points on income benefit payouts for joint survivorship living-benefit riders. These riders made up about half of all the guaranteed-living-benefit-rider elections in the first quarter, Mr. Glass said on the call.
“This will likely slow sales for the balance of the year, but the second quarter will be somewhat elevated as the product changes are implemented,” he said. “Our focus is not on taking market share with low-priced offerings but selling solutions that are valuable to our customers to help us achieve good returns and manage risk.”
This round of changes is only the latest tweak Lincoln has made to its variable annuities business. Aside from lifting rider fees and cutting benefit levels, Lincoln also has decreased commissions and cut back add-on payments into variable annuities recently, Mr. Glass said. “Others have done the same thing and we continue to see good demand from consumers,” he said.
Product changes thus far haven't been enough to turn consumers off of variable annuities, Mr. Glass said.
Though Lincoln wants to moderate its sales volume, advisers can expect to continue seeing its products on their broker-dealers' platforms.
“We'd rather tamp down sales,” he said. “We're not looking for 30% to 35% [VA sales] increases this year, and we can't turn on a dime because we don't like to take product off the shelves. It's not a good strategy vis à vis our distribution partners.”
Other steps that the insurer has taken to curb its variable annuity risk include adding a suite of volatility-managed portfolios as underlying VA investments and making them available to clients who opt for living benefits. Of the company's $2.9 billion in sales in the first quarter, 78% included a guaranteed-living-benefit rider that used the volatility managed strategy.