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MetLife, Pru, Hartford Discuss Annuities in Earnings Calls

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Three major insurers held their second-quarter earnings calls yesterday and while the financials varied for each, variable annuities played a part in the discussions. The comments, even when the results seemed positive, underscore the difficulty of insuring annuity products in today’s economic landscape.

Prudential reported that gross variable annuity (VA) sales in Q2 hit $5.3 billion, up from $4.5 billion a year ago. Charles Lowrey, COO of Prudential’s U.S.-based businesses, said the sales “were slightly higher than we wanted, but not higher than we expected.” The insurer averages about $5 billion in VA sales per quarter, he added.

The company has announced plans to launch a new VA product, the Highest Daily Lifetime Income Benefit 2.0, or HDI 2.0, which will increase the rider fee to 100 basis points on individual contracts, raise the minimum issue age by five years to age 50; and will reduce the payout rate from 5% to 4% for the age 59-and-half to 65 band.

“We try to manage any acceleration in sales as carefully as we can,” said Lowrey. “Having said that, we’d expect sales to trend down somewhat over time, and that’s what we hope for.”

Meanwhile, at MetLife, variable annuity sales totaled $4.6 billion, a decline of 34%. In May, the company revealed its plans to scale back VA sales in favor of accident and health products in the U.S.

William J. Wheeler, president of the Americas at MetLife, said that the company was planning on making alterations to its variable annuities. “We’re changing some more of our features in our variable annuities,” he stated. “We’re altering our dollar-for-dollar [withdrawal] features, which I think will improve ROI.”

At Hartford, talk centered on its progress to exit the VA business entirely. Last month, it appointed Beth Bombara to head the life runoff unit, which includes the company’s legacy annuity business. And just this week, it agreed to sell its broker-dealer arm, Woodbury Financial Services, Inc., to American International Group for $115 million.

Liam E. McGee, chairman and CEO of Hartford, said the sale “is proceeding as we expected. These are attractive businesses and it’s been a competitive process.”

Bombara, said McGee, is working to “reduce the size and risk of our legacy annuity liabilities, as well as initiatives that could isolate or separate them from the ongoing businesses and, over time, free up capital.”

Christopher John Swift, CFO and executive vice president at Hartford, detailed the company’s annuity surrender rate experience since the spring announcement it was exiting the VA business. In the quarter, surrender activity averaged an annualized rate of 17.5% in the U.S., he said. “The surrender rate increased to 20% in April immediately following the announcement but has since trended down to last year’s level of 14% in July,” he said. “Some of the decline is probably due to the decline in market levels, as we normally see lower surrenders in down markets.”