The variable annuity industry’s first quarter sales came in at $26.2 billion, a figure that is only 23% of last years total premium flow of $112.8 billion.
In last years third quarter commentary (see NU, Dec. 3, 2001), we estimated a potential growth rate of approximately 7% on 2002 total flow, which would yield a sales level of $121 billion. Now that we are well on our way into the year, it is clearly evident that issuers will not meet such an aggressive increase.
New sales for the first quarter were $25.5 billion, with internal exchanges of $674 million. Internal exchanges of 3% in this quarter are on the lower end of the quarterly historic average. The positive news on total flow might be the fact that product exchanges could be on the decline.
First quarter VA assets of $891.5 billion posted a 0.7% increase over 2001 year-end assets of $885.4 billion. Of the Top 25 VA Issuers, 64% posted positive first quarter asset growth. This is a significant improvement over 2001s year-end issuer results, where only one company out of the Top 25, Pacific Life, posted positive asset growth for the year.
Standout first quarter issuers with noticeable growth of overall VA assets include Allstate Financial (6.8%), Pacific Life (3.7%), New York Life (3.7%), and Manulife (3.2%). Current VA assets need to rise a little over 9% to hit the largest-ever year-end total of $973.5 billion from 1999, although industry assets did hit the $1 trillion mark in 2000.
Variable annuity net sales declined 31.9% in 2001 to end the year at $29.9 billion. Net sales of $43.9 billion in 2000 were 32% of the years total premium flow of $137.2 billion, as compared to last years net sales percentage of total flow of 27%. These statistics do include VA contract assets from the fixed/general interest accounts of the issuers, as well as all variable contract subaccounts.
It is important to remember that while an individual contract or issuers total premium flow is a traditional gauge of a product or companys sales success in the market, it does not reflect the asset drain from surrenders, withdrawals and investment performance.
These net flow statistics were compiled by The VARDS Report on behalf of NAVA and were announced on May 22, 2002.
One traditional yardstick of determining sales momentum has been the issuers sales ratio as found in the tables accompanying this article. Generally speaking, in the first quarter a sales ratio of 25% or higher might indicate sales momentum that was on track to equal or exceed the prior years sales. Eleven issuers in the first quarter had sales ratios of 25% or higher. In order of new sales rank these firms include TIAA-CREF (26.9%), Metlife/NEF/GenAm/MLI (31.9%), AEGON/Transamerica (32.9%), Lincoln National (26.7%), Manulife Financial (27.1%), Sun Life Financial/Keyport (27.8%), Allmerica Financial (27.6%), IDS Life (25.0%), The Prudential (29.5%), Phoenix Life (27.2%), and Allianz Life (50.7%).
At year-end 2001, only four issuers had equaled or exceeded their prior years sales.
In the category of Top 25 variable annuity contracts ranked by new sales for the first quarter, sales momentum has been on the rebound since year-end 2001. Last year only four VA contracts equaled or exceeded their previous years sales. Using the sales ratio benchmark, last quarter there were 15 VA contracts (60% of the Top 25) with sales ratios of 25% or higher. Of this group, seven contracts had strong sales ratios in excess of 35%. In order of new sales rank these contracts include Pacific Lifes Pacific Innovations Select (38.2%), Hartford Lifes Director Outlook (39.5%), Transamerica Lifes Landmark Variable Annuity (63.8%), Manulifes Venture III (172.5%), Sun Life/Keyports Keyport Vista (68.3%), The Prudentials Strategic Partners Annuity One (47.4%), and Phoenix Home Lifes Phoenix Retirement Planners Edge (58.8%). The Top 25 VA contracts account for 47% of the industrys total new sales.
We have included with this article a listing of the Top 10 investment management institutions within the variable annuity industry. It is important to note that together these firms manage 57% of all industry VA assets, a significant statistic.
This ranking includes TIAA-CREF Investment Management, LLC, whose $249.3 billion of assets under management represents 28% of the first quarters $891.5 billion in total VA industry assets. Wellington Management Company with $43.3 billion of VA assets under management comes in at number two, with a total VA industry market share of 4.8%. Fidelity ranks number three with $40.3 billion and a market share of 4.5%. Putnam ranks fourth with $33.6 billion and a market share of 3.8%, and in fifth place is Alliance with $31.9 billion and a market share of 3.6%.
Rounding out the Top 10 in order of their rank with market share percentage are MFS Investment Management with $27.3 billion (3.1%), Capital Research and Management with $26.2 billion (2.9%), Janus Capital with $25.7 billion (2.9%), American Express with $19.8 billion (2.2%), and Metropolitan Life with $13.5 billion (1.5%).
An important factor for todays successful VA investor is the challenge of market awareness and effective asset allocation. Additionally, the increasing complexity of both product choices and feature selection within the available products adds another level of decision making.
A recent study by John Hancock Financial Services confirmed that average Americans devote little time to the management of their investments and generally lack the appropriate knowledge to manage them effectively. The role of the distributor and the VA investors advisor couldnt be more important in todays market environment, considering these two factors.
As product issuers and distributors continue the task of identifying the services and programs necessary to address the needs facing VA investors and their advisors, the ongoing need for research and knowledge on multiple levels has grown.
Last quarter VARDS conducted a Variable Annuity Broker Dealer Distribution Study to identify factors influencing product distribution within the national wirehouse, regional and independent sales channels. The study included a focus on the identification of both the factors and processes associated with 1035 exchanges and the attitudes of senior management on the practices employed in both the sale and conservation of variable annuity contracts. The study employed senior management interviews as well as analysis of survey responses and primary data found within the VARDS product databases.
Participants in the study included 21 broker dealers representing 82,000 producers with a combined sales volume of over $20 billion in VA production. Regional firms represented 47% of the respondents, independents 29%, and national wirehouses 24%.
Over a third of those surveyed felt that feature choice suitability was a concern and cited factors contributing to problems such as the large number of issuers and contracts, bonus contracts and share class options. That many distributors feel a level of concern regarding this issue is an indication that opportunities exist for better education and wholesaling support at the broker dealer level.
Additionally, the consistent expansion of subaccount options continues to pose a problem in the minds of those surveyed. With many of the best-selling contracts containing more than 50 investment funds, it is very difficult for producers to maintain a detailed understanding of the roster of managers, investment style and individual subaccount characteristics. In spite of the availability of educational materials, asset allocation and other support programs, over 40% of the distributors expressed concern about the election of investment options.
As the equity markets seek a path to profitability, so does the VA marketplace in the face of declining net sales. Product and fund proliferation are expected to continue as issuers compete for distribution. Competition from new products like 529 plans makes the road to finding new client investment dollars as challenging a task as ever for the variable annuity industry. The need for competitive intelligence and thought leadership may also be greater today than at any time I can remember over the past 15 years. Yet success in the marketplace is being found by those firms who have carefully listened to their clients and implemented with speed the solutions demanded.
, 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, June 10, 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.