New variable annuity sales of $128.4 billion for the full year ending 12/31/2004 surpassed the previous record of $128 billion set at the end of 2000. VA assets of $1.1 trillion for year-end 2004 also set a new record.
While the record-setting year surpassed the previous milestone, it did so by a slim margin of 3% when compared to new sales in 2003 of $124.8 billion. The VA industry asset growth rate fared much better, ending the year 12% higher. When compared to the extraordinary market returns of 2003, 2004 was not a blockbuster for equities, with the Dow Jones Industrial Average, the S&P 500 (with dividends reinvested), and the NASDAQ Composite posting returns of 3.2%, 10.9% and 8.6%, respectively.
Additionally, net flows in 2004 did not measure up to the positive trend seen in 2003. As a percentage of new sales in 2004, net flows were 31.2%, compared to 37% in 2003. Net flows are a measure of the industrys health and represent a benchmark of new dollars entering the VA market.
Merger and acquisition activity within the VA industry continues to consolidate concentration of sales within the Top 25 VA Issuers. As a percentage of new sales, the Top 25 market share in 2004 was 95.3%, up from 94% in 2003. The Top 25 VA contracts controlled 51.4% of last years total new sales, compared to 43.9% of new sales in 2003. With over 900 contracts and 38,000 funds in the VARDS VA universe, the market share of these contracts is notable.
While 56% of the Top 25 VA Issuers in 2004 surpassed their sales record of 2003, 5 issuers did so with new sales ratios in excess of 125%. In order of sales rank these issuers include ING Group of Companies (127.8%), Lincoln National (170.3%), John Hancock Life (130.7%), Travelers Life and Annuity (132.3%), and Allianz Life (160.6%). Firms which posted the biggest improvement in terms of positive ranking movement within the Top 25 VA issuers include Lincoln National, which moved to 7th from 11th last year; Allianz Life, to 13th from 16th; MassMutual, to 21st from 24th; and Northwestern Mutual, to 25th from 29th. Together these firms posted the most positive new sales momentum in a difficult year.
Some of the leading Top 25 sales companies last year also witnessed substantial changes in their growth of VA assets. Ranked in order of total industry VA assets under management, firms with a 2004 year-end asset growth of over 20% include MetLife/NEF/GenAm/MLI (21%), John Hancock Life (22%), Pacific Life (26%), Jackson National Life (37.9%), and Allianz Life (47%).
The dominant VA sales driver in 2004 was the Guaranteed Minimum Withdrawal Benefit offered in an ever-increasing number of contracts. In 2003, 40% of all new sales (from non-group products) were from products that offered the feature. In 2004, that figure had soared to 69%! Contrast that to a substantial decline in contracts offering the Guaranteed Minimum Income Benefit, which slipped to 43% in 2004 from 52% in 2003. The feature is seen today as a viable long-term “income” substitute for actual contract annuitization or purchase of an immediate VA.
Recent in-depth interviews with leading advisors conducted by the VARDS Greenwald Strategy Service in January 2005 showed that many advisors actually referenced the use of the GMWB as “annuitization.” It is clear there is the beginning of a distinct blurring of the definitions to these concepts. Even insurance executives have been quoted in recent articles referring to GMWB usage as a “kind of annuitization.”
Adding to the momentum of growing wide-scale interest in use of GMWB contract benefits was the introduction last fall by Jackson National of a stand-alone GMWB-for-life feature. It is important to note from a historical perspective that Transamerica was the first to innovate the concept in late 2003 and Hartford was the first to develop the standard GMWB in 2002. Unlike the standard version of the GMWB, this newest cousin guarantees a percentage withdrawal for the life of the annuitant regardless of account value. Additionally, some GMWB-for-life features also include step-ups in account value, typically every 3 or 5 years. Standard GMWBs provide withdrawal benefits only up to the value of the principal or until the account value reaches zero. (Note: our intent here is only to provide broad-based definitions, not an exhaustive review of the new product line features.)