New sales of variable annuities totaled $178.8 billion in 2007, a 15.5% increase over 2006 new sales of $154.8 billion.
On a quarterly basis, new sales of $46.7 billion represented a 3.3% increase over 3rd quarter 2007 new sales of $45.2 billion and a 17.6% increase over 4th quarter 2006 new sales of $39.7 billion.
Assets under management dropped slightly in the 4th quarter, to $1.49 trillion from 3rd quarter assets of $1.5 trillion, a 1.2% decline. Assets increased from $1.38 trillion in the 4th quarter of 2006, a 7.9% increase year over year.
Net flow declined slightly in the 4th quarter, to $9 billion from $9.4 billion in the third quarter of 2007, a 4.3% drop. On an annual basis, however, net cash flow of $34 billion in 2007 showed solid improvement, increasing 14.5% over 2006 total net cash flow of $29.7 billion.
AXA/Equitable moved into the number one spot in variable annuity sales in 2007 with total new sales of $15.5 billion and market share of 8.7%, coming in just ahead of MetLife’s $15.3 billion in total new sales and 8.5% market share.
Sales concentration in the top companies continues to increase–2007 sales data show that just over 70% of all variable annuity sales were in products issued by the top 10 companies. Just 5 years ago, at the end of 2002, the top 10 companies represented 61% of all variable annuity sales. Rounding out the top 5 companies were TIAA-CREF with $14.1 billion in sales and a 7.9% market share, Hartford Life at $13.3 billion and 7.4%, and Lincoln National at $12.8 billion and 7.2%.
Sales of the top 25 variable annuities 2007, including group products, totaled $87.1 billion, with market share of 48.7%.
The top retail product in 2007 was the RiverSource RAVA4 Advantage variable annuity. New sales of $5.59 billion for the year gave RAVA4 Advantage a 3.13% market share and 145% sales growth over 2006 sales of $2.29 billion. RAVA4 Advantage offers enhanced death and living benefits, as do most top-selling contracts, as well as a relatively low M&E of 1.05% combined with a 1% or 2% purchase payment bonus depending on the amount invested and/or the length of the surrender charge schedule chosen. Investments in excess of $1 million may be eligible for a 3% purchase payment bonus.
Other 2007 top selling retail variable annuities were Jackson National’s Perspective II (2007 new sales of $5.14 billion, 2.87% market share; John Hancock’s Venture III ($5.07 billion, 2.83%); Pacific Life’s Pacific Innovations Select ($4.27 billion, 2.39%); and American Skandia’s Xtra Credit Six ($3.51 billion, 1.96%).
Several companies saw significant gains in assets under management. Of the top 25 companies, the top 5 in terms of year over year percentage asset growth were Ohio National (36.7%), Genworth Financial (26.7%), Jackson National Life (25.5%), Fidelity Investments (17.4%), and Pacific Life (16.2%).
Assets by investment category also told an interesting story in 2007: 3 of the top 5 categories by percentage asset growth were target-date categories: the year 2030+ (106.9%), 2015-2029 (84.1%), and 2000-2014 (73.1%), further evidence of the growing strategic use of variable annuities as retirement income and retirement planning vehicles. While target date funds certainly have grown in popularity outside variable annuity products as well, they are particularly well suited to the variable annuity. Providing risk management for the insurer and a simple, understandable and easily implemented solution for advisor and investor, the expectation is for invested assets in target date funds to continue to outpace growth in other asset classes.
Sales and assets under management in variable annuities have been growing steadily since hitting a low point at the end of 2002. Assets of $1.49 trillion as of Dec. 31, 2007 were 91.4% higher than the nadir of $776 billion reached on Dec. 31, 2002.
Recent market and economic turmoil, increased uncertainty, and the requirements of FINRA 2821 suggest the possibility of a dark cloud for variable annuities in 2008. But 2008 may also be the acid test for the variable annuity message. Historically, fixed annuity sales have increased and variable annuity sales decreased during eras of declining equities markets and uncertain economic outlook. The “flight to quality” for retirees and near retirees should also be a “flight to guarantees,” allowing investors nervous about the future to “buy low” with the peace of mind they need to stay the course and keep a portion of their portfolios allocated to the asset classes that have historically proven to be effective hedges against inflation. A true bear market has not occurred since the advent of the Guaranteed Minimum Withdrawal Benefit and other enhanced income guarantees. Aggregate investor behavior regarding the adoption of living benefit guarantees, should we be heading into an extended declining market, will bear watching.
Frank O’Connor is product manager, VARDS, at Morningstar, Inc. He can be reached via email at