The year got off to a dismal start for variable annuity issuers, and it looks like it will stay that way.
After strong growth in 2010 and 2011, VA sales are expected to slow as products become less attractive, guaranteed-withdrawal percentages slide and fees continue to skyrocket.
The typical fee load for a variable annuity is sitting at 3.65%, up from 3.15% in 2010, according to FBR Capital Markets & Co., which released its Channel Checks report last week.
The investment bank recently interviewed insurer wholesalers, financial advisers and insurance agents to gather information on where product trends are expected to go this year.
These days, variable annuities have become so costly and unattractive that they won't even benefit from the legions of baby boomers retiring this year.
“Advisers have aggressively pulled demand forward from the baby boomer cohort for years,” wrote Randy Binner, an analyst and author of the report. “The wave of baby boomers reaching retirement age will not be enough to overcome less attractive products, in our view.”
MORE RESTRICTIONS
Mr. Binner also noted that clients seem to be triggering the guaranteed features on their products, which will reinforce insurers' decisions to place more restrictions on VA features.
Indeed, times are rocky for life insurers, with The Hartford Financial Services Group Inc. saying last month that it would stop selling annuities April 27. Meanwhile, last year, John Hancock Life Insurance Co. restricted its annuity distribution to a handful of broker-dealers.
Sun Life Financial Inc., Genworth Financial Inc. and ING Groep NV also have beaten a hasty retreat from the VA arena. Even MetLife Inc. is easing up on VA sales.
These days, advisers are more interested in making sure that their clients don't end up with an insurer that decides to exit the annuity business: Consistency is now a priority.
“In prior years, advisers were more focused on putting clients into the VA with the best offerings,” Mr. Binner wrote. “They are now sensitive to putting clients in a product that might go into runoff.”
As a result, advisers are leaning more toward the likes of Lincoln National Corp., historically a fourth-place player, and Mr. Binner believes that the insurer, which accounts for 6% of the VA market, can continue to add market share.A FEW STANDOUTS
Jackson National Life Insurance Co. continues to be a favorite among advisers, namely for its investment flexibility and competitive guarantees, according to FBR.
Also expected to add market share are Transamerica Life Insurance Co., SunAmerica Annuity and Life Assurance Co. and Ohio National Financial Services Inc.
Transamerica is gaining traction with risk-based pricing for an investment option that moves some of the market risk to the consumer, along with a monthly step-up feature.
Advisers also told FBR that SunAmerica has been wholesaling aggressively and pushing for more business. Indeed, sales jumped by 26% in 2011, compared with the prior year, reaching $8.01 billion and keeping the insurer in sixth place among VA sellers.
Ohio National, meanwhile, has a guaranteed-withdrawal benefit that ranges from 4.25% to 7% — an attractive upper bracket at a time when many carriers are becoming miserly with such features.
dmercado@investmentnews.com
