Variable Annuity Sales Fell 17.8% To $113 Billion Last Year
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Total sales of variable annuities in 2001 fell to $112.8 billion, down 17.8% from 2000s record of $137.2 billion. At the same time, year-end 2001 VA industry assets of $882.9 billion were down 7.7% from $956.5 billion the year before.
New sales of $106.6 billion in 2001 were 94.5% of total flow, with internal sales last year dropping to 5.5% from 2000s level of 7%.
Mergers and acquisitions continue to play a pivotal role in furthering the consolidation of VA industry sales and assets by company. The acquisition of substantial blocks of business from well-established product lines can have a dramatic effect on market share and sales rankings.
Last years number two VA issuer ranked by new sales was AIG/SunAmerica/VALIC. Prior to the addition of the VALIC product line through the AIG acquisition of American General last August, AIG/SunAmerica ranked 11th in new VA sales in 2000. While the company occupies the number 2 position for new sales last year, in the category of assets under management it falls behind Hartford Life and TIAA-CREF, with a market share of 6.3% of total VA industry assets.
Hartfords asset base of $74 billion is 33.5% larger than that of AIG/SunAmerica/VALIC, giving it a market share of 8.4%. TIAA-CREFs assets of $250.1 billion provide it with a 28.3% share of total VA industry assets.
Average assets under management for a Top 25 VA Issuer (including TIAA-CREF) are $32.5 billion. Excluding TIAA-CREF, average assets under management for a Top 25 VA Issuer are $22.8 billion.
The Top 25 VA issuers control 92.1% of all VA total net assets and are responsible for 91.2% of all new VA industry sales.
The first back-to-back losses (in 2000 and 2001) in the equities markets in almost 30 years continued to erode industry assets under management in 2001. Twenty-four (96%) of the Top 25 VA issuers ranked by assets under management were in the negative column when compared to their 2000 year-end total net assets. This number is up from 56% in the same category from 2000 as compared to 1999.
Only one company, Pacific Life, posted a positive rate of growth on assets, up 7.3%. Interestingly, Pacific Life posted the highest total net asset percentage gain in 2000 at 14.5 %, and the firms net flow as a percentage of new sales is the highest in our database for 2001, at almost 70%. The issuers success in this difficult market is attributable to a synergistic combination of factors.
Out of the Top 25 VA contracts in 2001, 2 were L-shares, 2 were C-shares, and 21 were B-shares. Pacific Lifes Innovations Select L-share product (first introduced last year) ranked 18th, with $1.2 billion in new sales. Hartfords Director Outlook (ranked at number 22) was the other new L-share product with $1 billion in new sales.
The L-share contract, with its shortened contingent deferred sales charge period, was the hottest and most well-received product in the broker-dealer community last year. The products design and its popularity was confirmed by a panel of leading B-D executives at NAVAs Annual Marketing Conference last month.
After hitting a 14-year low in 2000, fixed/general interest account VA industry assets rose to a 22.2% share. Some companies in 2001 offered attractive alternative rates to money markets as national interest rates hit a 40-year low, and enterprising sales reps utilized the fixed accounts of C-share VAs for investor dollars.
As a safe haven, money market accounts rose to recent highs and ended the year at 4.5% of total industry assets.
While fixed/GIA accounts hit record lows in 2000, growth accounts hit a record high of 21%, but declined last year to 18.8%, as investors reallocated assets and market performance punished equities, especially large-cap growth stocks. Growth and income funds and all other equity funds’ share of total industry assets were 24% and 15.9%, respectively.
Balanced funds and all fixed income/bond funds posted respective industry shares of 7.8% and 5.4%.
Sales by individual distribution channel in 2001 showed 2 of the 6 tracked were up and 4 were down. Captive agency was up 2 points to 36% and regional firms were up a point to a market share of 13%.
Of the 4 that were down, independent firms gave up 3 points to a share of 24%, national wirehouses were down 2 points to 14%, direct response and banks were each down a point to a share of 2% and 11%, respectively.
At the end of 2000, the captive agency channel had picked up 3 points in market share. The two-year 5-point increase reflects increased sales capacity from strong players in the group over the period. TIAA-CREF has crept back into the number one issuer spot, and other group issuers like Mass Mutual, AIG/SunAmerica/VALIC, New York Life, and Northwestern Mutual Life have had successful sales buildups.
Additionally, a large proportion of more stable group 403(b) plan participants originate from this group. The single percent declines in both the direct and bank channels primarily reflect the focus on alternative safe haven investments such as fixed annuities in the case of banks, and the natural drop-off of investment dollars to the direct response channel from the declining markets.
For the independent NASD and national wirehouses, market share declines have also contributed to shifts in product focus.
While todays Top 25 VA contracts (ranked by new sales) continue to retain some of the most venerable industry products, every year new products with the most sought-after features, benefits, and designs climb their way to this top group.
As noted above, two new L-share products entered the group last year, as did another Hartford product, Hartford Leaders, and Kempers Destination. GEs Commonwealth, Hartfords Putnam Capital Manager, Prucos Discovery Select, and Jackson Nationals Perspective left the Top 25 for 2001.
In addition to the two new L-share products in the Top 25, the two C-share products are TIAA-CREFs Retirement and Supplemental Annuity and Fidelitys Retirement Reserves. All of the other products are B-shares, with a six or more year contingent deferred sales charge period, while C-shares are considered no front- or back-end load products.
The Top 25 contracts from 2001 have no A-share (front load) products. Nine of the Top 25 products are primarily classified as sold in the captive agency distribution channel, nine are primarily independent NASD channel-sold products, four are regional, two are bank and one is direct. There are no products in last years Top 25 ranked by new sales that were primarily sold through the national wirehouse distribution channel.
A recent examination of the VARDS database of 414 VA open contracts revealed that 12 contracts (2.9%) were A-shares, 260 contracts (62.8%) were B-shares, 99 contracts (23.9%) were C-shares, and 43 contracts (10.4%) were new L-shares. As a percentage of sales, A-shares market share is 1%, B-shares is 70%, C-shares is 22.5%, and L-share is 6.5%.
When it comes to the number of subaccount choices for all products, 32 is the average. For todays Top 25, the average number of fund choices is 40. TIAA-CREFs Retirement and Supplemental Annuity has the smallest number of funds at 10, and AIG/SunAmerica/VALICs Portfolio Director Plus has the most at 67.
When it comes to features and benefits, the Top 25 contracts surpass industrywide averages on a percentage basis in all but one category. As already mentioned, they lead in the average number of funds available. In the category of dollar cost averaging (DCA), 96% of the Top 25 VA contracts offer the feature, while 92.4% of all industry contracts offer it. In the category of enhanced DCA, they lead with 32% versus 23.5% for all VA contracts.
Under optional death benefits, the Top 25 lead 72% versus 44.3%. In the category of optional GMIBs and GMABs, they lead 40% versus 22.3% and 12% versus 4.5%, respectively. For optional purchase payment bonus, 28% of the Top 25 offer the feature versus 18% for the overall industry. For optional principal/original investment protection features, 20% of the Top 25 offer it versus 10.2% for all other contracts.
Only in the category of 100% liquidity features is there a lower average percentage–12% for the Top 25–compared to 23.2% for the overall industry.
As we look forward to 2002 with renewed optimism for a marked turnaround in the economy, we look to the equities markets as a leading indicator of what the future might hold for the balance of the year.
In all but three of the last 50 years, as the month of January ended in overall market performance, so went the balance of the year. January ended with modest losses in all three closely followed indices. In two of the three noted exception years, the Vietnam War was being fought. Perhaps 2002 will again follow history, and this year will be the exception to the upside. I for one will be keeping my fingers crossed!
Rick Carey, executive vice president of Info-One, is editor and publisher of Marietta, Ga.-based The VARDS Report, an Info-One service that publishes variable annuity statistics.
Reproduced from National Underwriter Life & Health/Financial Services Edition, March 11, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.