VA sales reach record levels, but have they topped out?

In the third-quarter, variable annuity sales surged, thanks in large part to MetLife Inc. But the jury is out on how the major insurers' decision to pare back offerings might affect overall VA sales.

Third-quarter variable annuity sales surged, thanks at least in part to MetLife Inc., but the jury is out on how major insurers’ decision to pare back offerings might affect overall VA sales.
Net variable annuity sales hit $8.8 billion during the third quarter, according to Morningstar Inc. and the Insured Retirement Institute — the highest they’ve been since 2007 and up from $6.4 billion last year.
VA sales, inclusive of exchanges, climbed to $39.1 billion during the third quarter, up from $34 billion in the same period in 2010.
MetLife Inc., which itself had some $8.6 billion in third-quarter VA sales and became the top seller, contributed its share of positive flows to the overall mix, noted Frank O’Connor, director of insurance solutions at Morningstar. He estimated that they accounted for about a quarter of all VA sales.
Unknown is whether overall sales will continue on this clip once MetLife reduces its income benefit to 5% from 5.5% in January.
“I don’t know necessarily that advisers will jump from something they know and are comfortable with, just because the step-ups are down,” said Kevin Loffredi, vice president of Morningstar’s annuity solutions group. “They might still sell like hotcakes even at 5%.”
On the other hand, advisers may gravitate toward other guaranteed minimum income benefit providers, such as Axa Equitable Life Insurance Co., if they prize the growth levels clients get on the benefit base from which they will eventually derive income.
MetLife’s benefit rider change reduces the compound growth of its clients’ benefit base to 5% from 5.5%, but Axa offers a rider that boosts the benefit base by 5.5% before withdrawals. That rate then falls to 5% when customers begin receiving income.
“Axa is in a position to pick up some business, if you look at it from a compounding growth point,” Mr. Loffredi said.
Equity market volatility helped drive VA demand, as nervous baby boomers recognized the attractiveness of living benefits. But with the largest insurers signaling a loss in appetite for VA business amid lower interest rates, there are questions about whether the pace of VA sales can be maintained.
“There’s a big unknown for future sales; it depends on how other carriers step up to meet the demand,” Mr. O’Connor said.
Meanwhile, fixed annuities took a modest decline in sales, falling to $18.9 billion in the third quarter from $19.5 billion in the year-ago period, according to data from the IRI and Beacon Research Publications Inc.
Indexed annuities, on the other hand, declined to $8.7 billion in the third quarter, reflecting a decline of less than 1% from 2010, according to data from AnnuitySpecs.com. The top five indexed-annuity-sales leaders were Allianz Life Insurance Co. of North America, Aviva USA, American Equity Investment Life Holding Co., Great American Financial Resources Inc. and Lincoln National Life Insurance Co.
MetLife spokeswoman Holly Sheffer declined comment on the possible scenarios, but reiterated CEO Steve Kandarian’s comments on a third-quarter conference call. In the call, he said that the insurer would make product adjustments in January and that if sales rose above plan that there are steps the company can take to bring them “in line.”
“AXA Equitable believes strongly in product diversification,” wrote spokeswoman Discretion Winter in an e-mail, “which is why we offer a full suite of variable annuities that address a host of client needs for retirement income growth and preservation under various economic conditions.”