Though the top three sellers of variable annuities extended their grip on the U.S. market through the first nine months of 2010, smaller-share players have become more aggressive in order to compete.
Though the top three sellers of variable annuities extended their grip on the U.S. market through the first nine months of 2010, smaller-share players have become more aggressive in order to compete.
The battle will be tough. The three VA leaders — Prudential Financial Inc., MetLife Inc. and Jackson National Life Insurance Co. — accounted for 40% of variable annuity sales, or $39.6 billion, for the nine months through Sept. 30. That's up from 32% for the same period in 2009 and 20% in 2008, according to Morningstar Inc.
The top three's dominance is especially felt in the independent-broker-dealer channel, where they accounted for 57% of the variable annuity sales in the period, up from 48% in 2009 and 31% in 2008.
“The middle tier can't compete in all channels with the big guys,” said John McCarthy, a product manager at Morningstar Inc.'s Annuity Solutions group. “It's really a question of the resources. How aggressive do you want to be? You're making the investment first, and you hope that the business comes in.”
To combat the VA heavyweights, carriers with smaller market shares are expanding their wholesaler efforts, offering lower-cost products, simplifying the transaction process, focusing on income strategies and concentrating their distribution efforts on particular channels.
Some of these smaller market-share firms — giants such as Nationwide Financial Inc. and Allianz Life of North America — already have begun to see success, experts said.
Ethan Young, an annuity re-search manager at Commonwealth Financial Network, said his firm's research desk has been receiving calls from advisers who are interested in products from carriers outside the Big Three.
“Nationwide, for instance, offers a policy that holds its own against the top products,” Mr. Young said. The income benefit base, or protected value, of the policy's L.inc living benefit grows at a rate of 10% annually (its roll-up) for 10 years, or until the holder makes his or her first withdrawal.
Nationwide also has added a service it calls Fast Lane, which simplifies paperwork for advisers writing a VA contract, and is emphasizing its Income Insight and RetireSense marketing tools, which showcase how advisers can use VA products, said Ted Keegan, vice president of marketing at Nationwide's annuity business.
Others outside the Big Three also are promoting themselves to advisers, broker-dealer executives said.
“Allianz works very hard internally to make those contacts,” said Zachary Parker, senior annuities and insurance consultant at Securities America Inc.
Some lesser-known carriers are offering their products at a lower cost than the giants. These annuities offer many of the same features as those of the top carriers and present a good deal for the client, experts said.
For instance, Mr. Young pointed to Protective Life Insurance Co., which offers a variable annuity with a 5% withdrawal benefit for life. The B-share version of the product costs about 1.15%, and the rider is about 50 basis points. While Protective doesn't throw in a deferral bonus, “I'm spending less than half the cost of the competitor's rider,” Mr. Young noted.
Despite these efforts, gaining market share is tough. For example, while Nationwide's sales in the independent-broker-dealer channel rose to $1.3 billion for the first three quarters of 2010, from $1.1 billion in the same period last year, its market share barely budged — to 3.9%, from 3.3%. Over the same period, Allianz' share slipped to 4.5%, from 4.8%.
The problem, experts said, is that the top three sellers offer very attractive products at a time when many competitors have had to simplify their variable annuities. Advisers gravitate to Prudential's Highest Daily Lifetime 6 Plus benefit, for example, because it grows at a 6% annual compounded rate. MetLife's guaranteed-minimum-income benefit also is very popular.
Advisers enjoy an array of 99 investment options and the ability to go 100% into equities through contracts offered by Jackson, which defends its leadership position.
“"Simplification' is the code word for "reduce the value of the benefit,'” said Greg Salsbury, vice president of distribution at Jackson National Life Distributors LLC. “Offering guaranteed income for a lifetime is a complex business, and in the wake of a meltdown, it's what pre-retirees most desire.”
Mr. Young believes that it's only a matter of time before consolidation at the top starts to reverse.
“If you watch annuities over the years, you see the cycle: Someone else will come up with the next best thing, and then there will be a push,” he said. “We'll see other companies chip away at this market share.”
E-mail Darla Mercado at dmercado@investmentnews.com.
