Life insurers launching new variable annuities despite tepid sales

A slump in VA purchases clashes with historical notion that product sales mirror the stock market's trajectory. And insurers are launching new products.
NOV 21, 2014
Sales of variable annuities are tepid industrywide, but the life insurers selling them continue to launch new products. Data from the LIMRA Secure Retirement Institute revealed that variable annuity sales hit $35.5 billion in the third quarter, down 1% from a year ago. Year-to-date through the end of the third quarter, sales were $105.9 billion, reflecting a 3% drop from the same period in 2013. The slump in variable annuity sales clashes with the historical notion that product sales would mirror movement in the domestic stock market. For instance, VA sales reached a height of $179.2 billion in 2007, according to Morningstar Inc., the same year the S&P 500 leapt by 4.8%. Similarly, sales slowed during 2009, particularly in the first quarter when the market reached its nadir in March. In that quarter, VAs only sold $30 billion, and totaled $124.0 billion at the end of the year, according to Morningstar. In 2014, the market has been fairly strong, with the S&P 500 up by about 11%, but VA sales are flat at a time when they otherwise should be up. What gives? Look no further than the changes to the VA industry. “The market has changed quite rapidly and dynamically over the last three to four years,” said Todd Giesing, senior business analyst for LIMRA's Secure Retirement Institute. “Companies are focused on managing risk and on the sales volumes they take in.” VA manufacturers cleaned up their act and began launching more conservative products after the recession revealed the danger of carrying massive liabilities tied to VA living benefits during a period when the market and interest rates are way down. Though that retrenchment started five years ago, sales continue to be tepid — not just industrywide but at individual broker-dealers. “There's still some contraction going on in the [VA sales] space: cessation of benefits, suspending specific living and death benefits, suspending sub-pays,” said Bob Steinke, senior vice president and head of managed and insured solutions group at Janney Montgomery Scott. “Regionals and wires are really seeing a bit of downturn in the business because so much is tied to VA.” Lackluster sales aside, manufacturers are still launching new products. MetLife Inc., once the top VA seller because of an attractive living benefit, is back with an investment-focused variable annuity with an optional return-of-premium death benefit: MetLife Investment Portfolio Architect. This offering has a fund-lineup with 80 offerings ranging in cost from 0.56% to 2.74% — the latter is for an alternative strategy offering from Permal Group. Elizabeth Forget, executive vice president of MetLife Retail Retirement and Wealth Solutions, is optimistic about where the VA industry will go in the near future. “The good news is that the industry is getting to a better place from a pricing discipline standpoint and a stability standpoint,” she said. “This year is a pivotal year; I think next year you'll start to see some growth relative to the market.” Other recent releases include Securian Financial Group's MyPath Ascend 2.0, an updated living benefit that will replace the first version of the feature. This contract provides a 200% benefit base guarantee either after the 67th birthday of the insured or on the 12th anniversary of the contract after the effective date of the rider, whichever is later. Clients are eligible for the 200% benefit base guarantee if no withdrawals have been taken from the contract on or before that time. Income percentages are at 5.1% for single life and 4.75% for joint life at age 65. Scott Stolz, senior vice president of PCG investment products at Raymond James Insurance Group, said sales of VAs at the firm are down 30% for November thus far, compared to the same period in 2013. That's the third lowest VA sales total at the firm over the last four years. For the third quarter, the numbers have been largely flat. “We didn't see a drop in the third quarter, and we didn't see any growth,” said Mr. Stolz. “But the bottom line is that these products, given the cost versus features, aren't as attractive as they used to be. Advisers aren't selling them as much.” He warned that sales will likely fall in the fourth quarter for many distributors since VA giant Jackson National temporarily halted sales of one of its most attractive VA features from Sept. 15 to Jan. 12.

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