Despite Slight 4th Quarter Uptick, Variable Life Sales Fell 32% Last Year

By

Despite a slight upturn in variable life sales in the fourth quarter of 2002, sales for the entire year–at $3.929 billion– were down over 32% from 2001s total of $5.815 billion.

The 2% increase recorded in the fourth quarter is substantially smaller than the typical increase of fourth quarter sales over the previous quarter. Third quarter to fourth quarter increases in VL sales have generally ranged from 13% to 25% over the period from 1997 to 2001.

VL sales with single premiums included at 10% for the 52 companies reporting in Tillinghasts VALUE survey for the fourth quarter of 2002 were $860 million, with full-year sales at $3.929 billion. This is almost a 2% increase over third quarter sales, but a 42% decrease from the fourth quarter of 2001, which had sales of $1.487 billion.

(Sales include first-year annualized premium, drop-in premiums and 10% of single premiums.)

The market estimate for 2002 with single premiums included at 10% is $4 billion.

Variable life sales with single premiums included at 100% for the 52 companies in the VALUE survey for the fourth quarter of 2002 were $898 million. This is a 42% decrease from the fourth quarter of 2001. Fourth quarter 2002 sales were flat compared to third quarter sales.

The market estimate for 2002 with single premiums included at 100% is $4.2 billion.

For 2002, the top five companies/fleets–Hartford Life, Pacific Life, Nationwide, MetLife and Equitable–captured 35% of all variable life sales (including single premiums at 10%), while the top 10 companies/fleets garnered 59% of all sales.

For 2002, Pacific Life reported the highest annual premiums ($210 million), yet ranked second based on total sales (including single premiums at 10%). MetLife had the second highest annual premiums ($175 million) yet ranked fourth for the year.

For the companies reporting in the survey, the number of flexible premium contracts issued during 2002 decreased 29% from the number issued during 2001. The average face amount increased 3% to $298,816, while the percentage of premium allocated to the general account increased to 7%.

The total premium for the 14 companies participating in VALUE with 15 single-premium products for 2002 was $128.8 million, compared to $180.3 million for 2001.

The number of single premium contracts issued during 2002 was 11% lower than the number issued during 2001. The average face amount decreased 18% to $148,278, while the average premium decreased 19% to $65,348.

The total premium from all second-to-die products issued during 2002 for those companies in the survey was $579.7 million, compared to $910.4 million during 2001. This decrease in premium can be attributed to the proposed changes and uncertainty surrounding estate taxes.

The number of second-to-die contracts (including single-premium and flexible-premium products) issued during 2002 decreased 41% from 2001. The average face amount increased 6% to $2,419,492.

For the companies reporting sales by distribution channel for 2002, career agents and independent broker-dealer firms dominated flexible premium variable life sales, capturing 45% and 42% of the market, respectively.

Career agents and independent broker-dealer firms dominated single premium variable life sales in 2002, capturing 37% and 35% of the market, respectively. Regional firms captured 18% of the market.

As of Dec. 31, 2002, total variable life assets for the companies reporting in VALUE were $75.1 billion, down from $84.2 billion on Dec. 31, 2001. Of the total assets reported, 88% were held in a separate account, down from 90% at Dec. 31, 2001.

VALUE classes funds into the following categories: growth, aggressive growth, growth and income, international stock, government bond, corporate bond, high-yield bond, international bond, money market, balanced and specialty (e.g., gold, real estate).

As of Dec. 31, 2002, approximately 71% of the variable life separate account assets were in stock funds; 10%, bond funds; 9%, money market funds; 8%, balanced funds; and 1%, specialty funds.

Fixed account interest rates on VL policies have increased. The average one-year interest rate on Dec. 31, 2002 was 5.34%, up from 5.19% on Sept. 30, 2002. The average renewal rate on Dec. 31, 2002 decreased to 5.11% from 5.21% on Sept. 30, 2002.

, CLU, ChFC, is with Tillinghast-Towers Perrin.


Reproduced from National Underwriter Edition, March 17, 2003. Copyright 2003 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.