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.
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.
