Variable annuity sales drop in 1Q and new leaders emerge

A new hierarchy is emerging on the variable annuities scene, as some of the largest sellers announce that their first quarter sales are down or flat. Prudential Financial Inc., which had once spent a few years as the number one seller of VAs, reported on Wednesday afternoon that its sales in the first quarter hit $2.3 billion, down 45% from the previous year. First quarter sales of VAs were also down for MetLife Inc., which reported $1.6 billion in variable annuity sales, down 54% from the year-ago period. Fellow annuity juggernaut Lincoln Financial Group reported flat variable annuity sales of $2.9 billion, effectively flat from the previous year and reflecting only a 0.3% increase. Jackson National Life, meanwhile, which is owned by London-based Prudential PLC, experienced huge increases in sales. Money going into its Elite Access VA, an investment-only product with no living benefits, hit 700 million British pounds sterling ($1.18 billion), up 36% from the year-ago period. Sales of VAs excluding Elite Access hit 3.2 billion British pounds sterling ($5.43 billion), reflecting an increase of 41% from the first quarter of 2013. These deposits include new sales and additions to existing contracts, notes Melissa Hernandez, a spokeswoman for Jackson National. The changing of the VA guard manifested itself in year end 2013's results, where Jackson National, Lincoln and SunAmerica Financial Group now garner the top three spaces in VA sales, according to data from Morningstar Inc. Though TIAA-CREF is featured in the chart below, most of its VA sales stem from the group VA and 403(b) retirement plan, rather than from the independent broker-dealer, wirehouse and bank channels, noted John McCarthy, product manager at Morningstar. The reason for the shift in the hierarchy goes back to steps MetLife and Pru took in recent years to moderate VA volume. Lincoln and SunAmerica are absorbing those dollars, as are Transamerica Life Insurance Co. and Nationwide Life Insurance Co., noted Mr. McCarthy. “There's a pure reshifting of volume between two bigger players and some of the others are picking it up on regular VA with living benefit sales,” he said. “I think it's all of the changes from last year, the pricing of various products in order to get exposure to variable annuities — particularly VA with guarantees — down to more of a reasonable level,” said Steven Schwartz, an analyst with Raymond James Financial Inc. He noted that a number of the companies with lower VA sales will likely look to raise sales through the remainder of the year. Indeed, Steve Kandarian, CEO of MetLife, said as much on a first quarter earnings call, and Prudential released an investment-only VA just last month. “It's almost a return to the 1990s,” Mr. Schwartz said of the proliferation of the investment-focused VA. “Effective and marginal tax rates are up. The concept of a mutual fund in insurance wrapper makes sense again.” The picture is quite different compared to 2008. Back then, equity market volatility and low interest rates hurt carriers that had already generated large blocks of variable annuity business with long-term liabilities from guaranteed living benefits. As a result, the insurers who were in the top 10 began to shift as some companies, such as Hartford Financial Services Group Inc. and ING, deemphasized and exited the VA space. https://www.investmentnews.com/wp-content/uploads/assets/graphics src="/wp-content/uploads2014/06/CI9455858.JPG" As some sales leaders pulled back after the recession, others emerged – particularly in 2011. Enter the Big Three of the VA world: MetLife, Prudential and Jackson National Life Insurance Co. https://www.investmentnews.com/wp-content/uploads/assets/graphics src="/wp-content/uploads2014/06/CI9455758.JPG" What reps loved about the Big Three was the fact that all three offered attractive living benefits, plus access to equities. With Jackson, reps appreciated investment freedom at a time when many companies were either limiting access to those funds or turning to strategies that shifted clients to bonds during periods of market volatility. MetLife, meanwhile, acquired massive sales in 2011 when they offered a VA with tamer investment options but attractive living benefits at 6% income benefit base growth and 6% withdrawals. MetLife tried to cool new sales of that product through that year, 2012 and 2013, eventually cutting that income benefit down to 4%. So what's ahead? Thus far, it looks like more growth in investment-only VAs, along with some insurers – those who don't already have a large block of living benefit liabilities – stepping up to offer living benefit features. So what's to come? Expect some more releases of investment-only variable annuities. “A ton of these were issued two years ago, but the rate of issuance has slowed because everyone is out there with one,” said Mr. McCarthy. “I think there's still some optimism about them. But the jury is still out on whether or not they take off.”