MetLife Inc., the insurer reducing variable annuity sales by more than half, said rivals that are expanding are probably retaining less funds to back the retirement products.
“The companies that hold the lowest amount of capital against their VA business are by and large the same companies who are most aggressively selling VAs today,” Bill Wheeler, MetLife's president of the Americas region, said at a conference on Tuesday. The sales expansion is “literally a doubling-down in this industry,” he said.
MetLife, the largest U.S. life insurer, has been scaling back from variable annuities to cut risks tied to market fluctuations. The contracts can guarantee that clients' assets will increase in value even when equities fall. Prudential Plc's Jackson National, the No. 12 seller of variable annuities in 2007, is now the biggest, followed by Lincoln National Corp.
Rivals “clearly have a different view about their risk profile, and the risk profile of the VA business,” Mr. Wheeler said without naming firms.
Mr. Wheeler, who was chief financial officer at New York-based MetLife until 2011, said the differences stem from models used to determine how likely it is that so-called tail events, such as a stock-market crash, will occur, and how much cash companies decide to hold to guard against those dangers. He said there's a lack of clarity from regulators about the proper capital levels.
“And so, who's right? I'm honestly not sure,” Mr. Wheeler, 52, said at the Insurance Executive Conference held by National Underwriter in New York. “To be fair, there's no clarity around this issue, at all.”
MetLife Chief Executive Officer Steve Kandarian is reducing “fat tail risk,” or the vulnerability to extreme market swings. Hartford Financial Services Group Inc. and ING U.S. Inc., among the top sellers of variable annuities in 2007, retreated from the retirement products after they were burned by the guarantees when stocks plunged in the financial crisis.
“Marketplace competition probably got a little out of whack,” Mr. Wheeler said. “Some companies really got in trouble because of the VA business, and they've never really been the same since.”
Returns on the retirement contracts have improved as insurers raised prices and reduced guarantees, Mr. Wheeler said.
Lincoln has advanced 94% this year in New York trading as the Radnor, Pa., company boosted annuity sales amid a stock-market rally. The insurer sold $10.8 billion of individual variable annuities in the first three quarters of 2012, compared with $7.3 billion a year earlier, according to data from industry group Limra. Lincoln said return on equity was 25% at the annuity unit in the first nine months of 2013.
“Right now is one of the best times that I've experienced in terms of selling variable annuities, from a return standpoint.” Brian Kroll, senior vice president of Lincoln's annuity unit, said in an interview last month.
The insurer struck a deal in October with Wells Fargo & Co. to transfer some risks tied to the products to a reinsurance unit of the San Francisco lender.
Jackson National, the U.S. insurer controlled by London Prudential, sold $15.5 billion of variable annuities this year through Sept. 30, according to Limra. That compares with $6.8 billion in the same period of 2007.
MetLife expects to sell about $11 billion of variable annuities this year, compared with $17.7 billion in 2012 and $28.4 billion the prior year, when it was the largest seller. The stock has advanced about 55% this year.
“MetLife's behavior in this market has been a little inconsistent,” Mr. Wheeler said. “A couple of years ago, we were the market share leader.”