Rich Get Richer In Variable Annuity Market

Copyright 2010 SNL Financial LCAll Rights Reserved SNL Insurance Daily

March 2, 2010 Tuesday

928 words

Rich get richer in variable annuity market

R.J. Lehmann

Well-capitalized giants MetLife and Prudential picked up significant market share in 2009, while the likes of ING, Hartford and AXA fell behind.

Big changes in variable annuity pricing and product design in 2009 yielded similarly large fluctuations in market share among major writers, with established names such as Prudential Financial Inc. and MetLife Inc. benefitting from a general flight to quality shift, based on new data from LIMRA International's U.S. individual annuities survey.

Bucking a trend that saw total individual variable annuity sales fall 18.4% to $127 billion, from $155.6 billion in 2008, several writers were able to score significant sales gains in 2009, including Sun Life Financial Inc., up 60.6% to $3.21 billion; Prudential Financial, up 58.0% to $16.11 billion; and Jackson National Life Insurance Co., the U.S. arm of U.K.-based Prudential Plc, up 54.7% to $10.0 billion.

Analysis of relative market share seems to support anecdotal reports of outsized gains by firms perceived to be the best-capitalized. While no insurer claimed more than 10% market share in 2008, three surpassed that threshold in 2009: Prudential Financial's 12.7%, MetLife's 12.1% and 11.0% by TIAA Board of Overseers' Teachers Insurance and Annuity Association of America. TIAA gained 1.69 percentage points of market share, yet still fell from first place to third.

Prudential Financial shot to the top spot in 2009 from No. 6 in 2008, in the process nearly doubling its 2008 market share of 6.6%. MetLife rose 3.2 percentage points from its 2008 market share of 9.0%, as sales rose 10.4% to $15.4 billion. In a Feb. 24 conference call, MetLife Chairman and CEO C. Robert Henrikson said the company now expects a "slight" increase in 2010 sales, adding that MetLife's products have "been repriced, de-risked even more than they were before, and our brand and our distribution power here is making the difference."

"There are winners and losers in variable annuities now because of the crisis. We happen to be a winner. We enjoy being a winner. That $15 billion sales number is a record for us." Henrikson said.

Donald Light, a senior analyst with Celent, said that while the flight to quality trend likely explains the moves by MetLife and Prudential Financial, share growth by firms such as Jackson National, which is distributed through independent brokers and advisers, and TIAA-CREF, which markets to employees of educational institutions, are probably more attributable to "changes in channel strategies and positioning, and in appetite for the sorts of risks embedded in VAs."

"Some of the biggest decliners had well-publicized problems. Others are probably best explained by enterprise/holding company decisions to lower their risk profiles," Light told SNL.

Excluding Genworth Financial Inc., which dropped out of LIMRA's top 20 and was replaced at No. 17 by Thrivent Financial for Lutherans, 11 companies in LIMRA's survey lost 25% or more of their 2008 variable annuity sales. Three insurers - ING Groep NV, down 51.5%; Pacific Life Insurance Co., down 55.1%; and The Hartford Financial Services Group Inc, down 66.3%. - saw sales decline more than half.

John Walters, president and CEO for Hartford Life Insurance Co., said the company's new Personal Retirement Manager variable annuity product, rolled out in the middle of the fourth quarter of 2009, is priced similarly to its existing variable annuity product and is designed to offer the company returns of 13% to 15% over time. During the company's fourth-quarter conference call, Walters said Hartford Life saw improving sales numbers "week to week" throughout the period but expects first-quarter 2010 sales to be softer. The company is continuing the transition process, Walters said, including getting state regulatory approvals for the new product and improving the run rate at key firms where "there were some operational issues that we needed to work through because the product is somewhat different."

"Broker penetration in most firms is relatively low, like under 25% doing VA on an active basis. So we think there's a lot of opportunity to reach out to brokers who are doing other types of business and bring them in for the guaranteed income that we provide," Walters said. "But there is a bifurcation going on where a lot of firms, a lot of our peers are pulling away from the more expensive, heavy equity market guarantees. A few are sticking with them, and so that's concentrating the business of those that are still interested in the heavy equity market guarantees."

ING saw the steepest drop in market share, falling from 8.9% in 2008 to 5.3% in 2009, followed by Hartford, which fell from 5.1% to 2.1% and AXA's AXA Equitable Life Insurance Co., which fell from 8.6% to 5.9%. AXA, which saw sales drop 44.1% to $7.48 billion, also rolled out a redesigned variable annuity with its Retirement Cornerstones product, noted Kevin Molloy, AXA's senior vice president of distribution finance.

Molloy expects some of the risk aversion that characterized the 2009 market to abate in 2010, as customers look to "get back into products that have guarantees and products that have more of a savings component rather than sitting in cash." After seeing dramatic quarter-to-quarter shifts in market share in 2009, AXA now expects to "have a reasonable market share," but Molloy added that "we don't feel we have to be No. 1."

"Certain market players have considerably dropped off market share over the last year, and we would expect that they'll be rationalizing the market share and maybe not playing at the same top-tier level," Molloy said during a Feb. 18 conference call. "So it's a very confusing, moving market, but the demand is still there."

March 8, 2010