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Despite sharply volatile equity markets, sales of variable annuities in the United States will grow about 13% this year, according to a researcher at Limra.
Total first-quarter sales of these stock market-linked retirement savings and income products in the United States rose to $39.8 billion, an increase of 24% from the same period a year ago, the industry research organization said.
Joe Montminy
, assistant vice president of annuity research for Limra, said the upward momentum in sales started shortly after the equity market started to recover in early 2009 and continued in the first quarter of 2011. For the rest of this year, Limra expects sales growth "to move in sync with changes in the equity markets," he said in an email.
On June 15, global stocks had plummeted on worries over Greece's debt, among other concerns.
Although there may be some volatility with the equity markets throughout 2011, Limra expects variable annuity sales to grow about 13% this year, Montminy said.
Maintaining sales leadership in the first quarter was Prudential Annuities, a unit of Prudential Financial (NYSE: PRU), with first-quarter sales of $6.8 billion. Metropolitan Life Insurance Co. (NYSE: MET) captured second place, with sales of $5.6 billion.
Coming in at No. 3 was Jackson National Life Insurance Co., with sales of $4.5 billion, while TIAA-CREF took fourth place, with sales of $3.3 billion. Rounding out the top was Lincoln National Life Insurance Co., a unit of Lincoln National Corp. (NYSE: LNC), with sales of $2.3 billion, according to Limra.
Before the financial crisis, variable annuity writers were competing intensely to offer better withdrawal benefits for life. In fact, these benefits were driving sales industrywide, according to a report by Conning Research & Consulting. But when the markets headed sharply south in the fall of 2008, companies had to re-assess their offers (BestWire, June 15, 2009).
The guarantees of locked-in income were great for policyholders who had seen their contract values rapidly decline. But the declines tested the financial resilience of insurers, and most have scaled back benefits and/or raised fees on new contracts.
Among the most popular of living benefit riders on variable annuities is the guaranteed lifetime withdrawal benefit, according to Insured Retirement Institute. It's a guarantee on the promise of a certain percentage -- usually about 5% -- of a guaranteed benefit base that could be withdrawn each year for the life of the contract holder, regardless of market performance or the actual account balance (BestWire, Sept. 16, 2010).
Nearly 15% of eligible policies started withdrawals within the first 12 months after becoming eligible, according to a recent Milliman survey.
To the extent that issuers have priced guaranteed withdrawal benefit riders correctly, an increase in election rates by contract owners, or the decision to buy a GLWB rider, is a positive for a company because it's making a profit on rider fees, according to
Jeremy Alexander
, chief executive officer of Beacon Research. "All other things being equal, an increase in withdrawal benefit exercise rates is negative for the company because the level of assets declines," he said in an email.
"But this should not be a problem unless contract owners are making more withdrawals than expected, because carriers have taken withdrawals into account in their product designs," Alexander said. The survey suggests that VA living benefits have reduced lapse rates more than expected, he said.
"That's good news for issuers in most cases because contract surrenders are expensive."
Prudential Insurance Company of America currently has a Best's Financial Strength Rating of A+ (Superior).
(By
Fran Matso Lysiak
, senior associate editor, BestWeek: fran.lysiak@ambest.com)
