Variable annuity sales—spurred by consumer demand for living benefits riders–grew at a faster rate in the third quarter than the overall financial markets, according to data released this week by LIMRA.
However, fixed annuity sales continued to struggle in a hyper-low interest rate environment, and insurers said they are lowering steps on annuities with living benefit riders in order to protect profitability.
Fixed annuity sales fell six percent in the third quarter and down one percent for the first nine months of 2011, according to LIMRA. AIG Companies paced sales in this category with $6.9 billion in sales in the third quarter.
Total fixed annuity sales equaled $20.2 billion in the third quarter and $61.9 billion in the first nine months of 2011, LIMRA said.
“While third quarter VA sales were two percent lower than second quarter results, VAs performed significantly better than the market, which was down 15 percent,” according to Joseph Montminy, assistant vice president for LIMRA’s annuity research.
He said the “equity markets in the third quarter were the most volatile we have experienced since the financial crisis began in late 2008, yet consumers’ demand for guaranteed lifetime income helped sustain VA sales.”
LIMRA said VA sales have experienced six consecutive quarters of positive growth – the last three in double digits.
In the third quarter, VA guaranteed living benefit riders were elected 88 percent of the time, when a GLB was available at purchase. In the first nine months of 2011, VA sales jumped 18 percent, to reach $120.9 billion.
Total annuity sales hit $60.4 billion in the third quarter, an increase of eight percent compared to prior year, LIMRA said. Year-to-date, annuity sales reached $182.8 billion, improving 11 percent from the first nine months of 2010.
The clear leader was MetLife. Its sales jumped 45.6 percent compared to a year ago, from $4.66 billion in the third quarter of 2010 to $8.56 billion in the third quarter of this year.
At the same time, market reports indicated that the tight market conditions had forced John Hancock, based in Boston, to lay off personnel in its annuities unit, announce moves to pare offers, and will also reduce its offerings of fixed, variable and immediate annuities.
John Hancock eliminated approximately 116 positions at various locations in Boston, due to the restructuring of its annuity business and a streamlining of its infrastructure.
Hancock spokesperson Beth McGoldrick said some employees were also redeployed to our growing mutual funds and 401(k) businesses.
“We are actively hiring and have approximately 110 open positions,” she said.
“The positions are from a variety of functions within the affected business units including IT, marketing, operations, distribution and finance,” she said.
McGoldrick confirmed that the annuity restructuring was due to volatile equity markets and the historically low interest rate environment that is expected to continue for an extended period of time.
“Going forward, our annuities will be sold only through a narrow group of key partners such as John Hancock Financial Network,” McGoldrick said.
“John Hancock will continue its award-winning service to its annuity clients, who will see no change in how their accounts are handled,” she said.
Regarding MetLife, Steve Kandarian, new president and chief executive officer of MetLife, said during the conference call on the company’s third quarter earnings Oct. 28 that MetLife’s Guaranteed Living Investment Benefit rider is currently 5.5 percent, down from earlier guarantees, and will be reduced to 5 percent at the beginning of the year.
That is the rate in which people can withdrawal from their benefit base each year. I also include the brochure so you have it.
Kandarian said that the variable annuity market continues to experience strong growth.
At the same time, “we are taking a proactive approach to managing the growth of our variable annuity business,” he said. “We … recently adjusted our GMIB Max offering to reduce risk and improve returns and we will be making further adjustments in January.”
He said that while “we are comfortable with the pricing and returns on our third-quarter VA sales, we continue to seek opportunities to reprice and improve the risk profile of our product offerings,” adding that “We are closely monitoring sales and if they rise above plan, there are steps we can take and will take to bring sales in line.”
He told analysts that they can be “assured that we are reviewing all of our product features to maintain a disciplined balance between customer value, risk and return.
“As a matter of sound capital management, we will only pursue growth that we believe maximizes long-term shareholder value,” Kandarian said.
Prudential Insurance was second in overall sales, with $16.7 billion in sales, and Jackson National Life third with $15.4 billion. The three had the same rank in variable annuities, according to the LIMRA data.
AIG was fourth in overall sales with $12.9 billiion, and led the fixed annuity category. TIAA-CREF was fifth in overall sales and fourth in VA sales.