Sony today. Who's next?
By Cyril Tuohy
Call it the year of the big reshuffle, the year where traditional variable annuity (VA) volume leaders dropped out of the top five and other carriers stepped in to fill the gap. Among the nation’s top 10 annuity carriers, it was a year of realignment.
Jackson National retained its No. 1 ranking last year from the previous year, but the action was heated for the next four spots.
TIAA-CREF jumped to No. 2, up two spots from the previous year; Lincoln Financial Group rose to No. 3, also up two spots from 2012; SunAmerica/VALIC came in at No. 4, also up two spots, and rounding out the top five was Axa, also up two spots from 2012.
Prudential, No. 2 in 2012, dropped to No. 6 last year, and MetLife, No. 3 in 2012, dropped to No. 8 last year.
For professionals of annuity industry league tables, the jockeying at the top of the new VA sales board came as big news.
“Last year there was a reshuffling of the variable annuity carriers, who are selling more and in what place they are in,” John McCarthy, product manager for insurance solutions at Morningstar, said in an interview with InsuranceNewsNet.
Cutbacks at Prudential and MetLife meant new opportunities for other annuity companies to move up. Aegon/Transamerica and Nationwide also posted high new sales ratios, and they were rewarded for it by moving up the charts.
Aegon/Transamerica stepped up to No. 7, up one spot from 2012, and Nationwide climbed to No. 9, up two spots from 2012, according to data from the mutual fund tracking company.
In the fourth quarter, product development activity slowed as carriers filed 61 annuity product changes, down from 84 product changes in the third quarter and 101 product changes in the fourth quarter of 2012, Morningstar said.
“The pipeline is less active than usual, with carriers likely saving their ammunition for the May 1 filing season,” McCarthy wrote in a separate note to clients.
Full year 2013 VA sales ended the year at $141.2 billion, down 1.5 percent from 2012, according to Morningstar.
With carriers looking to limit cash in-flows into VAs, net cash flow into the industry was only $1.3 billion, a sign that the industry was “barely treading water,” Frank O’Connor, product manager with Morningstar’s Annuity Research Center, said in a report.
Analysts said annuity carriers, seeking to reduce their VA exposures, continued to pass the risk on to contract owners last year – though from a credit perspective, annuity carriers still have a way to go to reduce their exposures, according to Moody’s Investors Service.
In March, Moody’s analyst Scott Robinson said exposures to guarantees embedded in VAs at Prudential, Jackson National and MetLife are coming down at all three companies, but “remains substantial.”
Notable VA product changes last year included changes in Axa’s Investment Edge contract, offering 124 subaccounts in all manner of investment styles. Fees range from 1.20 percent for B-shares to 1.25 percent for C-shares, McCarthy said.
Great West Life & Annuity also launched its Smart Track II annuity, a version of its Smart Track contract. Smart Track II, with a 1 percent fee, offers the same 67 subaccounts as Smart Track. It also offers a “uniquely structured” lifetime withdrawal benefit, he said.
Company filings reveal higher mortality charges, higher expenses associated with guaranteed living withdrawal benefits, and higher surrender charges with Smart Track II compared with its older Smart Track sibling.
Analysts have noted that annuity carriers have raised prices and become stingier with benefits, and no company exemplified that better than The Hartford, which imposed investment restrictions in October on the Lifetime Income Builder Selects guaranteed living withdrawal benefits.
A minimum of 40 percent of assets in the account had to be dedicated to fixed-income investments, the company said, and failure to do so would result in the revocation of the lifetime withdrawal benefit, leaving only the death benefit.
Between Oct. 25 and Dec. 16, Jackson National suspended applications for 1035 exchanges for qualified transfers of assets. The company refused to accept transactions involving contracts with living benefits unless they were submitted through a Jackson National affiliated broker-dealer, McCarthy said.
“Limits were the story this quarter,” he added.
Managers limit VA sales to tweak a company’s overall insurance and annuity portfolio exposures. As VAs require significant capital reserves, companies decided they were better off redeploying the capital elsewhere, McCarthy said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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