VA Sales In First 6 Months Are Less Than Half Of Last Year’s Total
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While year-to-date variable annuity sales continue to remain below last years level, second quarter sales of $29.3 billion showed the first quarterly rise in a year. Mid-year total premium flow of $57.7 billion is 42% of last years $138 billion in sales volume.
Second quarter VA assets grew 3.5% to $910 billion, yet remain 6.5% below year-end 2000 VA assets of $972.7 billion.
As of mid-year, only 6 (24%) of the Top 25 VA contracts had sales ratios of 50% or higher, as compared to last years total sales. Of the top 25 VA issuers, only 3 (13%) had sales ratios that hit the 50% mark.
While we have ranked the Top 25 VA issuers by total premium flow (including internal exchanges), we have also provided rankings by new sales. New sales exclude VA-to-VA internal exchanges, but include external exchanges and internal exchanges from fixed annuities.
Second quarter internal exchanges rose slightly to 6% as compared to last quarters rate of 4.7%. Internal exchanges in 2000 were 6.7% of total premium flow. As noted in last quarters commentary, internal exchange programs have become a key component of essential asset retention activities. (See NU, June 4.) Perhaps the biggest news item of the second quarter was John Hancocks rise into the industrys Top 25 VA issuers. Formerly ranked 29th, Hancock rose to 19th on year-to-date total premium flow of $1.27 billion. Of that total, $924 million (74%) was from a recently begun Safe Harbor internal exchange program. The program began in April, and as equity analysts have noted, has diverted attention from new sales.
Hancock has identified $2 billion of existing in-force contracts for which the Safe Harbor exchange program is available. Under the Safe Harbor provisions, contract owners exchange conditions are fully disclosed.
For many contract owners holding older products like Independence and Independence Preferred, exchange to the newer Revolution Value VA contract has obviously been a popular choice. The Revolution Value VA contract ranked 7th in the Top 25 VA contracts for the period ending June 30, 2001. Of the products $1.1 billion in total premium flow, $935 million was from internal exchanges.
The decision to offer such programs (which do hold risks for insurers) represents difficult near-term choices for public companies. The trade-off between growth and earnings per share versus the long-term stability of asset retention is a double-edged sword. In the end the market will be the final arbiter, yet doing what is in the best interests of ones clients should always be the right thing to do.

For the first time in as many years as I can remember, quarterly market share of VA sales by distribution channel did not change. The captive agency channel, which had risen three basis points last quarter, remained constant at 37%. Independent NASD firms, the second largest category by distribution channel, stayed at 25%, while regional and New York wirehouses stayed at 13% and 12%, respectively. Having each lost a point last quarter, bank/credit union and direct response remained at their respective shares of 11% and 2%.
Investor sentiment turned positive through the second quarter, as the NASDAQ OTC composite posted a 17.4% return. The year-to-date return for the tech-dominated index is negative 12.5%, while the one-year performance return comes in at negative 45.5% for the second quarter.
The Dow Jones Industrial Average and the S&P 500 with dividends reinvested posted more modest gains of 6.3% and 5.9%, respectively. Overall, year-to-date and one-year returns on the Dow and S&P 500 are considerably better than the NASDAQs. For the Dow, the returns are negative 2.6% year-to-date and positive 0.5% for the past 12 months as of June 30, 2001. For the same time periods, the S&P 500 posted negative returns of 6.7% and 14.8%, respectively.
For the time being, the markets appear to have discounted the modest tax plan refund checks and the historic Federal Reserve rate-cutting schedule (seven in six months) totaling 300 basis points. While it is widely anticipated that the Fed will continue cutting rates, the jury is still out on the overall effects these historic rate cuts will have on consumers.