New sales were up 12.6% over 3Q last year

Variable annuity new sales of $33.5 billion in the third quarter were just a shade above second quarter new sales of $33.3 billion but still quite strong in a quarter that historically has been the weakest of the year.

The $33.5 billion in third quarter new sales represents a 12.6% increase over sales in the same period in 2004 and brings the year-to-date total for new VA sales (excluding internal exchanges) to $98.1 billion. Given this strong third quarter performance, the second quarter estimate for 2005 new sales has been revised from $128.5 billion to $131 billion.

Of the Top 25 companies, the five with the highest sales momentum in 2005, as measured by the ratio of 9/30/05 YTD sales to 2004 full-year sales, are as follows: Ameriprise (IDS Life) with a sales ratio of 109.4% and 4.9% market share; Ohio National Life, 105.5% with .6% market share; Jackson National Life, 95.3% with 3.5% market share; John Hancock Life, 92.0% with 5.6% market share; and Northwestern Mutual, 91.0% with a .6% share of total VA sales.

The five VA contracts showing the most significant growth in sales momentum were the RiverSource Retirement Advisor Advantage Plus VA with a sales ratio of 178.3% and 2.9% market share; the Equitable Accumulator Elite VA, 118.4% with 1.7% market share; the American Skandia Apex II, 118.3% with 1.7% market share; the John Hancock Venture III VA, 106.7% with a 3.3% market share; and finally the Equitable Accumulator 2004 VA with a sales ratio of 100.7% and market share of 1.7%.

Retirement Advisor Advantage Plus offers a purchase payment bonus, guaranteed minimum accumulation benefit, guaranteed minimum income benefit, and maximum anniversary value and earnings enhancement death benefits. The Equitable Accumulator products offer maximum anniversary value, rising floor and earnings enhancement death benefits in addition to GMIB, GMAB and guaranteed minimum withdrawal benefit. Accumulator Elite is an L-share product (four-year surrender charge). American Skandia’s Apex II offers all three death benefit options, and also offers GMIB and GMWB. Finally, John Hancock’s Venture III VA offers maximum anniversary value and earnings enhancement death benefits and a GMWB.

Market share movers included Lincoln National Life, ranked seventh by new sales in 2004, which moved to the No. 5 spot as of 9/30/05 year-to-date. Hartford Life moved from first to third, swapping positions with TIAA-CREF. MetLife maintained its No. 2 ranking (2004 data adjusted to reflect the acquisition of Travelers Life–MetLife actually ranked fourth and Travelers 12th in 2004), while Pacific Life dropped two spots to rank 10th. Jackson National Life continued its growth in market share, moving from 14th in 2004 to 12th as of 9/30/05. MassMutual and Merrill Lynch each dropped two slots, 20th to 22nd and 23rd to 25th, respectively.

The distribution of sales by share class in the 9/30/05 year-to-date period did not change dramatically from the second quarter. Bonus product sales were up slightly at 27.5% of total sales from 27.1%; straight B-shares dropped slightly from 28.6% to 28.2%; and C-shares gained a bit, moving from a 3.6% market share to 3.8%. Continuing a trend, L-shares saw the largest gain, from 17.6% in the first half of 2005 to 18.4% as of the YTD period ending 9/30/05.

Non-group VA sales totaled $82.2 billion in the third quarter YTD period, and sales of non-group VAs with living benefits continued to increase. Some $70.9 billion or approximately 86% of all non-group VAs sold offered some variety of living benefit, with many offering more than one. Contracts offering the GMIB totaled $37.2 billion in sales, or 45% of total non-group sales. The GMIB was available in contracts representing 43% of sales in 2004. The GMAB, offered on just 25% of non-group contracts in 2004, has shown a significant jump in availability in 2005. Contracts offering the GMAB totaled $30.2 billion in the first three quarters of 2005, or almost 37% of total non-group sales. Hybrid benefits, where a single living benefit is elected that can be exercised as either a GMAB or GMWB, have contributed to the jump in GMAB availability. Finally, the GMWB was available on contracts totaling $65.6 billion in third quarter YTD sales, or almost 80% of all non-group sales, representing a significant increase over 2004 GMWB availability in just under 70% of non-group sales. Non-group sales of products that offer no living benefits continue to slide, down to $11.4 billion, or about 14% of the total, in the third quarter year-to-date period, vs. 20% of total 2004 non-group sales.

Third quarter asset-weighted subaccount performance was approximately 3.9%, fueling additional growth in total VA assets under management. As of 9/30/05, total dollars invested in VAs, including fixed (general) account assets, were $1.175 trillion, up 4.6% from 12/31/04 assets of $1.124 trillion.

Of the Top 25 companies, the five largest percentage asset gains were achieved by Allianz, up 20.1%; Jackson National, up 19.9%; Pacific Life, up 12%; Ameriprise, up 9.2%; and AXA Financial, also up 9.2%.

As for net cash flow, the third quarter estimate is $4.6 billion, bringing the YTD total estimate to $14.6 billion. Net cash flow for 2005 is projected to be in the neighborhood of $20 billion, a 50% drop from the 2004 estimate of $40 billion.

Frank O’Connor is product manager, VARDS products, at Morningstar Inc. He can be reached via e-mail at frank.oconnor@morningstar.com.