Pru: Interest Rates in 3Q Pressured VA Profits
Copyright: | (c) 2010 A.M. Best Company, Inc. |
Source: | A.M. Best Company, Inc. |
Wordcount: | 395 |
The interest rate environment in the third quarter put pressure on the profitability of the U.S. variable annuity industry despite a rally in the stock market, says the president of the U.S. annuities business of
Third-quarter U.S. sales of stock-market linked variable annuities rose 9% from the same period a year ago, to
The stock market performed well, as industry sales tend to be closely correlated with the moves in the
The company remained No. 1 in sales of these retirement- savings and income products in the quarter, with year-to date sales of
A boost in the stock market is "a welcome development" as it helps reduce pressure on the profitability of variable annuities, said Pelletier.
That's been particularly important because the interest rate environment "has worked in the other direction" and dropping interest rates in the quarter "certainly increased pressure on the profitability of VA product design."
Sales of variable annuities dipped about 2% from the prior quarter, LIMRA said.
Several carriers recently stated their intention "to revamp product design in response to that capital markets development," Pelletier said.
On a day when the markets drop sharply, Prudential's product design mitigates capital market risk to the company as an insurer but also protects clients' separate account values, he said.
The company sells a variable annuity that offers investors a highest daily "step-up of the protected withdrawal value," Pelletier said.
Another insurer has made a filing for a product that the company thinks will operate in a similar fashion to Prudential's for introduction early next year, Pelletier said.
Last year, for the first time ever,
On the morning of
To listen to the entire interview with Pelletier, where he discusses trends heading into the fourth quarter and 2011, go to http://www3.ambest.com/ambv/displaycontent/MediaArchive.aspx?PC=3016
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