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June 03, 2001 at 08:00 PM
VA Sales Took A Nosedive In The First Quarter
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Last May, the first quarter headlines from a VARDS Press Release on variable annuity industry sales read, “Variable Annuity Sales and Assets Reach All-Time Record.” First quarter 2000 total premium flow had hit $36.5 billion, eclipsing 1999s first quarter premium by 36%.
What a difference a year makes! Not since the 1994/1995 period have we witnessed such a significant annual first-quarter-to-first-quarter decline in premium flow. During the 94/95 period, sales declined 23.8%. First quarter 2001 total premium flow of $28 billion is 23.3% lower than first quarter 2000s $36.5 billion.
Internal exchanges in 2000 were 6.73% of total premium flow. First quarter 2001 internals came in at 4.72% of total premium flow. Internal exchanges are a new component of the VARDS premium flow statistics begun last year.
Of the first quarters top 25 VA issuers, only 5 (20%) had sales ratios of 25% or higher. For all VA issuers during this calendar quarter, 19% had first quarter sales ratios of 25% or higher. These sales results show a significant decline when contrasted to first quarter 2000s statistic where 71% of all VA issuers in that period had sales ratios of 25% or higher.
Total net assets of $878.8 billion declined 9.6% from year-end 2000s total net assets of $972.6 billion. First quarter 2001 assets are 15.8% lower than industry assets from first quarter 2000. Every issuer in the top 25 had negative asset growth in first quarter 2001, with percentage changes ranging from -6.8% to -15.4%. As noted in our previous commentary (see NU, March 12), last quarters (year-end 2000) asset decline of 1.6% was the first time in the past decade that we have witnessed negative asset growth industrywide.
It was further noted that, “What makes this decline stand out is its stark contrast to the fact that the average annualized asset rate of growth from 1991 to 1999 has been 24% per year.”
Negative investor sentiment continued into the first quarter in the wake of last years market performance. Coming off last years 39.3% loss for the NASDAQ, this index lost 25.5% for the first quarter. The S&P 500 lost 11.8%, followed by a Dow Jones Industrials loss of 8.4%.
The VARDS Market Average for all Equity Funds lost 13.9%, while all Fixed Income Funds found positive territory, posting a modest 2.4% return. Aggressive Growth Funds for the VA universe lost 22.5%, while Growth and Income Funds fared somewhat better, trimming their market loss for the quarter to 9%.
During the month of April, the equity market averages posted a positive return, with the NASDAQ up 15%. The Dow Jones Industrials were up 8.7%, and the S&P 500 posted a 7.7% return. While these returns were positive, it will take a number of months of positive returns to significantly influence overall investor sentiment to the upside.
We estimate VA industry sales for the month of April at $8.8 billion, a figure that is 5.7% below first quarters average monthly sales of $9.3 billion. At this point in the year, we would estimate 2001s total VA industry premium flow to come in between $108 billion to $112 billion. At the high end of this prognostication, 2001s VA sales would post an 18.5% decline for the year. The last time the VA industry posted an annual decline was 1988, following the market crash of October 1987.
Market share of VA sales by distribution channel for the first quarter found the Captive Agency channel rising to 37%, a 3% increase over 2000 and a 6% increase over 1999. We would attribute the majority of this recent rise more to a loss of active sales in the Independent Broker-Dealer channels than to an active increase of sales by the Captive Agency channel, especially in light of the downward trend in the number of Agency channel employees.
Other changes in distribution from year-end 2000 were as follows: Bank/Credit Union lost 1%, coming in at 11%; Direct Response lost 1%, declining to a 2% share; Independent NASD Firms lost 2%, posting a share of 25%; New York Wirehouses stayed constant at 12%; and Regional Firms gained 1%, rising to 13% of total VA industry premium flow.
While total premium flow was down for the first quarter of 2001, the top 10 and 25 VA issuers market share consolidated to the upside. The top 10 issuers share rose 2.9% to 54.8%. The top 25 rose 1.6% to a market share of total premium flow of 90.1%. The top 50 rose 0.5% to close out their market share at 99.7%.