The DOL fiduciary rule could push these firms' variable annuity sales even lower

Only one firm, MetLife, posted any substantial gains, as market volatility and fixed indexed annuities cut into VA business.

Mar 31, 2016 @ 1:43 pm

By Greg Iacurci

Many of the top variable annuity companies saw sales figures drop off last year, and the pain is only expected to continue, or even accelerate, this year given the Labor Department's looming fiduciary rule, market volatility and cannibalization of VA sales by fixed indexed annuities.

Major variable annuity carriers such as Prudential Financial Inc., Lincoln Financial Group, Transamerica Life Insurance Co. and Nationwide had double-digit drops in VA sales during 2015 compared with the year prior. Only one firm among the sales leaders, MetLife Inc., had any substantial increase in sales.

The lackluster sales fit with a broad theme that's played out in the annuity market over the last several years, with 2015 capping off a fourth straight year of sales declines for variable annuities.

And evidence points to that trend continuing into this year, if not growing more acute.

“We've seen a dramatic drop in variable annuity sales since December,” said Scott Stolz, senior vice president for private client group investment products at Raymond James & Associates Inc. “If there's not at least a 10% to 15% drop in variable annuity sales for the first quarter of 2016, I'll be surprised.”

VA sales were down 5% in 2015 versus the year prior, to $133 billion, according to Limra, a trade organization for life insurers.

Transamerica's 22.9% drop-off was the most pronounced among the major VA carriers. The firm, the No. 7 VA seller in 2015, saw a $2.3 billion dip in sales to $7.8 billion.

Lincoln, Prudential and Nationwide — the No. 3, 6 and 9 carriers, respectively — had losses hovering between 12% and 13%.

MetLife, the No. 8 seller, seemed the lone bright spot on the leaderboard, its $7 billion in VA sales representing 11% growth year-on-year. (Even so, the increase was just $700 million.)

MetLife spokesman Al Killeffer attributes the growth in part to the launch of a new guaranteed lifetime withdrawal benefit (GLWB) rider, FlexChoice, in February 2015 and “right-sizing,” or de-risking, of the firm's variable annuity business.

Prudential looked to diversify its VA sales strategy in 2015 and “reduce retained exposure to equity market-related living benefit guarantees,” according to Rodney Branch, senior vice president of product and marketing at Prudential Annuities.

Nationwide spokesman Ryan Ankrom said the firm is committed to variable annuities for the long haul, even in a time when that market is shrinking.

Transamerica spokeswoman Julie Quinlan didn't return a request for comment. Lincoln spokesman Eric Samansky wasn't able to immediately comment either, but pointed to the firm's fourth-quarter earnings call.

Top Variable Annuity Sellers, 2014-2015
Hover over the name of the insurer for more details. Red lines indicate a sales decrease, and green lines show an increase.
Source: Limra


In that call, Dennis Glass, chief executive of Lincoln National Corp., highlighted how the Labor Department's proposed regulation to make fiduciaries of anyone providing retirement investment advice is weighing on the industry's collective psyche.

“As I noted last quarter, market volatility dampened demand for most equity-sensitive products including variable annuities, and it was hard to tell if the Department of Labor proposal was also having an impact on industry sales,” Mr. Glass said.

The DOL's fiduciary rule is expected to hugely disrupt the qualified VA market, leading advisers to take up more fee-based rather than commission-based annuities and insurers to develop products catering to that shift.

Alex Wynaendts, chief executive of Aegon N.V., Transamerica's parent company, believes the DOL's proposed regulation — expected to drop any day now — is leading advisers to stall any sort of decisions on product sales in the short term.

“I think that advisers ... that operate in the qualified area which is the one that is now being affected by the Department of Labor, I would expect [them] not to try to sell product before a change of rules,” Mr. Wynaendts said in Aegon's fourth-quarter earnings call. “So I would not expect an increase in sales before a change of regulation.”

Mr. Stolz said the proposed rule likely hasn't contributed much to the VA sales decline up to the present day. However, if the rule goes through has proposed, there will be a “pretty immediate” negative impact on VA sales that would likely occur within months, he said.

If the rule were finalized in its proposed form, it will be “the most adverse scenario” for insurers, Mr. Glass said.


Volatility in the stock market in late 2014 and earlier this year has led investors to seek out more conservative investments, which could eat into sales figures this year. The S&P 500 was down 1.75% in December, just over 5% in January and nearly 0.5% in February.

“The annuity industry itself is a roller coaster. I think it's all going to shift based on the market itself,” said Samantha Chow, senior life and annuities analyst at Aite Group, a research and advisory firm. “We'll continue to see [the sales decline] through this year and potentially the following year … and [then] it might shift again.”

Variable annuity carriers are also contending with the rise of fixed indexed annuities, whose sales have been moving pretty much opposite those of VAs. Fixed indexed annuities had their best sales year on record in 2015, which was the eighth consecutive year of growth for the annuity products.

“I absolutely believe indexed sales are cannibalizing VA sales. I don't believe that's by design [on the part of the insurers],” Mr. Stolz said. “There's no question in my mind, a significant percentage of the VA sales with living benefits are going to indexed sales with living benefits.”

VA carriers have “watered down” some of the living benefits they can provide, through higher fees on living-benefit riders, restrictions on investment options and reduced payouts in general on the riders, Mr. Stolz said.

“We saw some of the top VA companies increase their focus on indexed annuity sales in 2015,” according to Limra spokeswoman Catherine Theroux. Nationwide and American International Group saw tremendous growth last year in their indexed annuity business, for example.

Massachusetts Mutual Life Insurance Co. and MetLife also recently entered into a long-term distribution agreement for fixed indexed annuities. It's widely thought fixed indexed annuities could be an ultimate benefactor of the DOL's fiduciary rule.


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