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The end of 2002 marked the longest consecutive bear market since 1941.
For the third year in a row, the major market indices posted losses for the year, as the Dow Jones Industrial Average, S&P 500 and NASDAQ lost -16.8%, -23.4%, and -31.5%, respectively. For variable product issuers already reeling from historic losses in fee-based income, the specter of a new year plagued with war and an uncertain economic picture did not give rise to celebration.
While variable life and the overwhelming majority of equity-based product sales declined in 2002, new VA sales posted a 4.1% increase over 2001 to $111.1 billion. Total sales (includes internal exchanges) for the same period rose .62% to $113.7 billion. This positive performance is a credit to the insurance features of the product, most notably guaranteed death, income and withdrawal options.
Despite the current risk-management difficulties the VA industry is facing, the role that this product will play going forward to insure individuals a secure retirement will all but assure its place at the retirement planning table.
Market losses continued to erode variable annuity industry assets, which closed 2002 at $788.9 billion, down -10.9% from year-end 2001.
Equity-based assets ended the year at 48.4% of total industry VA assets, with fixed/bond assets holding a 10.3% share. Money market assets and balanced/asset allocation assets remained small at a 4.9% and 7.5% share, respectively. General interest account (GIA) assets remained close to all-time highs with a share of total industry assets of 28.9%. As a point of comparison, over the past decade GIA assets market share has been as low as 18.8% in 2000 and as high as 34.7% in 1995.
For the Top 25 VA issuers ranked by assets under management, only three firms posted a positive increase in 2002 assets. Ranked in order of assets under management, they include Aegon/Transamerica with a 4% change, Pacific Life with a 0.69% change and Jackson National Life with a 7% change. For the balance of the Top 25, percentage change losses from the previous year ranged from a high of -21.2% to a low of -2.1%. There was virtually no change in 2002 market share from the previous year for the Top 10 and Top 25 VA issuers. They continue to control 69.1% and 92.4% of total VA industry assets under management.
In the category of Top 25 VA issuers ranked by new sales, 52% posted 2002 annuity sales which equaled or exceeded previous year sales, while the balance (48%) posted sales which were below. Three issuers posted a 2002 sales ratio of greater than 150%. Ranked in descending order, these firms include Aegon/Transamerica (205.7%), Jackson National Life (184.4%) and Allianz Life (343.2%). The individual contracts which contributed to the strong performance last year of these issuers are a testament to the guaranteed insurance features driving consumer interest in VA products.
The Top 10 VA issuers control 62% of last years total industry new sales, while the Top 25 control 92%. As compared to the previous year, the market share for the Top 10 rose by a significant 4%, while the share for the Top 25 remained virtually the same.
There was no lack of volatility in the Top 25 VA contracts in 2002. Four contracts were brand new, and six moved up in rank by more than 10 places. Leading issuer Aegon/Transamericas Landmark VA alone contributed to 37% of the issuers total 2002 sales volume and ranked 3rd in the Top 25, moving from 50th place in 2001. Landmark is a B-share product with a guaranteed minimum income benefit option and is coupled to 53 investment options. Hartfords Director Outlook moved to 6th place this year from 22nd in 2001. The L-share product is primarily sold through the bank channel and has 29 investment options and a guaranteed minimum withdrawal benefit. Manulifes Venture III contract moved to 13th from 110th. Venture III is also an L-share contract, with 61 investment options, and has an optional guaranteed minimum income benefit.
A new entrant to the Top 25 for 2002 is American Skandias XTra Credit SIX B-share, which is a bonus product coupled to a principal protection program with 87 investment options. Equitables new Accumulator Plus 2002 B-share product ranked 18th in new sales. The contract has 44 investment options, with a principal protection plan and an optional GMIB feature. The Jackson National Life Perspective II Fixed and VA contract is new in 2002 and ranked 20th. It is a B-share contract with 53 investment options, has an optional purchase payment bonus, principal protection benefit, and an optional GMIB. Allianz Lifes USAllianz Alterity contract moved from 122nd in 2001 to 21st last year. It is an L-share contract sporting 52 investment options, with an optional GMIB program. The Phoenix Retirement Planners Edge ranked 22nd last year, moving from 66th in 2001. The contract is a C-share product (one of two in the Top 25) with 55 investment options and a GMIB feature.
The Equitable Accumulator 2002 placed 25th in the Top 25 VA contracts and is a B-share product with 44 investment options. The contract has a principal protection program and an optional GMIB. Please note that we have not annotated optional death benefit features that these contracts may have due to space limitations. For example, the Jackson National Perspective II contract has seven optional death benefit options.
While the Top 25 VA contracts are still predominately B-share products, the growth of C- and L-share products over the past two years has been quite noticeable. For example, in 2000, 87% of the retail non-group VA contracts were B-share, while C-share comprised 10.5% and L-shares held only 1.7%. A-shares comprised less than 1% of the total retail non-group open contracts in 2000. In 2001, the comparative breakout by contract share type in order of B, C, L, and A was 78.9%, 13.7%, 6.2%, and 1.2%, respectively. In 2002, the pace of growth of L-share contracts surpassed that of C-shares, and today is showing signs of being the preferred new pricing entrant to the mix. As of the end of last year, the comparative breakout by B, C, L, and A was 67.1%, 16.6%, 15.0%, and 1.2%, respectively.
An examination of VA industry assets by retail non-group contracts reveals that while B-share products have declined over the past two years as a percentage of all retail contracts (from 87% to 67%), their net assets have declined by a smaller margin (from 90.7% to 85.9%) of total net assets for retail non-group products. C-share product assets have grown for the period of 2000-2002, from 6.7% of total retail non-group contracts to 8.8%. Over the same period, L-share contract assets have grown from 2.3% to 4.7%. A-share contract growth has hardly changed during the period 2000-2002, growing from 0.3% to 0.6%.