Second-Quarter U.S. Sales of Variable Annuities Rise 8.3% as Investors Return to Market

Total U.S. sales of variable annuities rose to $33.9 billion in the second quarter, an 8.3% increase from the same period in 2009, according to Morningstar Inc. and the Insured Retirement Institute.

Year-over- year sales of these stock market-linked retirement-savings and income products advanced at the greatest pace since 2007, IRI said.

The uptick in sales "underscores that investors are taking a second look at coming back to the product" but also that financial advisers continue to see the value to their bottom lines, said Danielle Holland, a spokeswoman for IRI. Over the past year, the industry has seen investors re-examining their portfolios and making adjustments to meet both their immediate and long-term financial needs, she added.

Prudential Financial (NYSE: PRU) maintained its No. 1 rank, with year-to-date sales of nearly $10.2 billion, according to Morningstar. Last year, Prudential became the No. 1 seller of variable annuities in the United States, with sales of $16.1 billion (BestWire, March 16, 2010). The company remained the leader in the first quarter of this year.

There were no changes in rank from the first quarter among the other companies in the top five.

Keeping second place was MetLife (NYSE: MET), with year-to-date sales of $8.5 billion, while TIAA-CREF held onto the No. 3 spot, with year-to-date sales of $7 billion, and Jackson National Life maintained fourth place, with year-to-date sales of $6.8 billion.

Rounding out the top five continued to be Lincoln National Corp. (NYSE: LNC), with year-to-date sales of nearly $4.4 billion, according to Morningstar.

"While products may be offering less lucrative benefits than in the past, investors are still attracted to the idea of creating a floor against losses," said Marco Chmura, VA data operations manager for Morningstar, in a statement.

Morningstar's data includes sales from individual, as well as registered group, annuities (BestWire, June 9, 2010).

Separately, LIMRA put total second-quarter U.S. sales of variable annuities to individual investors at $35.5 billion, a gain of 11% from the prior year.

Most companies in the top 20 experienced sales growth in the second quarter, whereas last year, growth was concentrated with the top five carriers, said Joe Montminy, assistant vice president for annuity research for LIMRA, in a statement.

An IRI report, compiled by Advanced Sales & Marketing Corp., found the cost of variable annuities has declined, with the average fee on a variable annuity chassis, or base product, dropping four basis points in the second quarter. The current average cost of a B-share, the most commonly sold, is 1.24%, IRI said.

Companies are doing this as one way to try to make variable annuities attractive to investors who are looking to return to the market, Holland said.

Earlier this year,  Stephen Pelletier, president of Prudential Annuities, said post-2008 financial crisis, variable annuity companies are charging higher fees to individual investors, but the value inherent in the guarantees "has never been clearer." (BestWire, Aug. 2, 2010).

Meanwhile, more than 83% of buyers of VAs in the second quarter chose a "living benefit" guarantee, IRI said. The most popular continues to be the guaranteed lifetime withdrawal benefit, Holland said.

The rider is a guarantee on the promise of a certain percentage--usually about 5%--of a guaranteed benefit base that could be withdrawn each year for the life of the contract holder, regardless of market performance or the actual account balance, she said.

Prudential Insurance Company of America currently has a Best's Financial Strength Rating of A+ (Superior).

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)