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Portfolio > Mutual Funds > Equity Funds

S&P Analyst Sees Slower VA Sales Growth

By Trevor Thomas

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NU Online News Service, Jan. 23, 2004, 9:07 a.m. EST – Variable annuity sales growth probably was respectable but relatively slow during the fourth quarter of 2003.[@@]

Thomas Upton, an analyst with Standard & Poor’s Ratings Services, New York, gave that assessment during a joint teleconference with Andrew Kligerman, an analyst with UBS Investment Research, New York.

The stock market is stronger than it was, but the S&P 500 is still 30% below its peak of a few years ago, while NASDAQ is currently 50% below its recent peak, Upton observed.

The performance of the S&P 500 affects sales of all equity-based products, including VAs, Upton said.

Kligerman predicted that carriers will report an average 5% increase in year-over-year VA sales for the fourth quarter, compared with a year-over-year growth rate of 16% during the third quarter. Stiffer competition from other equity-based products, including mutual funds, accounted for the slowdown, Kligerman said.

Some larger VA carriers are likely to report much stronger sales increases, the analysts said. Kligerman pointed out that Hartford Financial Services Group Inc., Hartford, already has preannounced an 18% increase in fourth-quarter VA sales, and he predicted that other carriers showing double-digit growth will include Lincoln National Corp., Fort Wayne, Ind.; MetLife Inc., New York; and Prudential Financial Inc., Newark, N.J.

Upton said carriers have been pricing variable products “more realistically” than they were pricing the products a few years ago.

Still, he noted, “we do have a lot of companies on negative outlook because of the adverse effects the equity markets had on fee income for variable products.”

He also noted that regulatory constraints on crediting rates and the continuing consequences of the credit quality crisis in 2002 and early 2003 have made it hard for carriers to maintain steady growth.

The strength of the current recovery of the equity markets is also unsure, Upton said.

“There could be a fragility to the recovery because of world events, the potential for a spike in interest rates and the credit quality of [carriers'] asset portfolios,” Upton said.

S&P analyst Rodney Clark said S&P currently has 20% of the companies in the life insurance industry on negative outlook or negative watch. He also noted, however, that the 20% figure is an improvement over the 40% S&P reported as negative in the fourth quarter of 2003. Moreover, the ratio of S&P downgrades to upgrades in 2003 was 18 to 3, compared to 20 to 1 the year before, Clark reported. He said he expects that number to moderate even further this year.

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