New sales of variable annuities ticked up 2.5% in the second quarter, totaling $41.1 billion, compared to first quarter new sales of $40.1 billion. On a year-to-date basis, however, new sales of $81.9 billion lagged 2007′s second quarter year-to-date sales of $86.9 billion by 5.8%.
The top 10 companies accounted for a slightly larger share of the market year over year–71.3% vs. 70.5% in the first half of 2007. This metric, however, has not consistently risen: In the first half of 2006 the top 10 companies accounted for 71.5 % of new sales. Sales of acquired companies are included retroactively in these statistics.
Assets under management were almost flat relative to the end of the first quarter. Assets as of June 30 were $1,406 billion, 0.11% higher than the March 31 total of $1,404.4 billion.
Net flow increased the most of the 3 metrics, to $7.5 billion compared to $7.2 billion in the first quarter of 2008, a 4.2% increase. On a year over year basis, however, net cash flow declined, interestingly, by the same percentage as sales, a 5.8% decrease from $15.6 billion to $14.7 billion.
TIAA-CREF regained the number one position in the sales rankings in the second quarter with an 8.86% new sales market share. TIAA-CREF was followed closely by Metropolitan Life with an 8.63% share of the VA market. ING came in 3rd in the rankings, also with an 8.63% market share and only $200,000 behind Metropolitan. AXA Equitable fell to number 4 with an 8.6% share of the market, and Lincoln National held at 5th place with 7.6% of second quarter VA sales.
The #1 and #2 non-group products in terms of sales in the second quarter were ING GoldenSelect Landmark and John Hancock Venture III, both L-share products distributed through all 3rd party channels, with the strongest sales through independent financial planners and wirehouse firms. Landmark ranked 3rd in both the independent and wirehouse channels, while Venture III took the #1 spot in wirehouse and ranked 5th in independent planner sales. The top 5 products in the wirehouse channel and the 3rd, 4th, and 5th ranked products in the independent planner channel were L-shares; the 1st and 2nd ranked products in the independent planner channel were products with purchase payment bonus features.
And finally, a few words on recent market volatility and variable annuities. According to the Hewitt 401(k) Index, the volume of balance transfers in 401(k) plans on September 29 was 2.1 times the trailing 12-month averages, with 43% of those transfers going to stable value funds.
Of course these statistics should be put in context: Only 0.10% of assets were transferred, 401(k) assets are disproportionately weighted toward older participants more concerned with capital preservation, and it is likely that these “flight to safety” transfers were also weighted toward older participants. Still, this means that over $1 billion in real participant dollars were transferred at closing prices on the 29th after having lost 7%, 8% or more, and likely will not be transferred back to equity funds until after the losses of September 29th have been recovered, and potentially not until significant gains have been made.
It is reasonable to extrapolate a similar scenario playing out in IRA and taxable accounts across the country, particularly in those held by older Americans. As I have written many times in the past, the choice of the appropriate mix of investment vehicles is impacted by myriad risk, investment goal, health, income need, and bequeathment factors, and there is no single investment basket that is appropriate for all of one’s eggs.
What I continue to find disturbing, however, is how often the argument against variable annuities focuses solely on costs. If a VA with a living benefit guarantee can provide the peace of mind to prevent nervous investors from making that fear-driven asset transfer, realizing a significant loss and likely missing out on the inevitable recovery, is that investor not ill-served by such an unbalanced discussion of these products?
Certainly no one knows where markets go from here–further declines and a severe or protracted bear market may prove the stable value transfer prudent for some investors in hindsight, particularly those generating income from their portfolios. But this reasoning is specious; asset reallocation should be driven by needs assessment and long-term investment goals rather than a knee jerk reaction to downside volatility, and foresight never tells us the same things as hindsight. If it did there would be reports of widespread high volume transfers from equities at peaks instead of troughs!
The appetite for risk rises with the market, and risk aversion rules when buying opportunities abound–there is a reason it is called the cycle of fear and greed. As is so tiresomely and obviously pointed out in the financial press there is no question that the fee structure of a typical VA with a living benefit is a drag on performance relative to a similar portfolio of no-load mutual funds, but the consequences of chasing positive performance (greed) and running from negative performance (fear) are potentially far worse.