U.S. Sales of Variable Annuities Decline in Fourth Quarter,

RESTON, Va., Apr 15, 2009 (A. M. Best via COMTEX) -- MORN | Quote | Chart | News | PowerRating -- Last year was dismal for the U.S. variable annuity industry. Fourth-quarter sales of these stock-market-linked, retirement-income products declined to $33.3 billion, a 30.3% decrease. Sales for the year declined 15.1% from year-end 2007 to $154.8 billion, according to NAVA and Morningstar Inc.

The Dow Jones Industrial Average in 2008 lost 33.8%, the third-worst performance in its history and the worst since suffering a drop of 52.7% in 1931 (BestWire, Jan. 5, 2009).

"Our industry is facing many challenges not unlike other industries that are being touched by today?s global financial crisis,? said Cathy Weatherford, president and chief executive officer of NAVA, the Association of Insured Retirement Solutions, in a statement. Consumers "are wisely taking their time to review and assess their investment options."

By individual company, Morningstar doesn't release sales data by quarter, but on a year-to-date basis.

TIAA-CREF captured the No. 1 spot, with $14.5 billion in sales in 2008. Taking second place was MetLife, with sales of nearly $14.0 billion; Axa Financial/MONY ranked third at $13.3 billion, while ING Group of Cos. took fourth place, with sales of $12.3 billion. Rounding out the top five was Lincoln National Life Insurance Co., with nearly $11 billion in sales for 2008.

Assets under management "saw another precipitous drop," falling nearly 25% to $1.1 trillion from year-end 2007, wrote Frank O'Connor, Morningstar's product manager, VA Database, in a summary of the results. Absent a recovery of the additional 22% loss in the S&P 500 since Dec. 31, 2008, or further losses, he wrote that he expects total industry assets to finish the first quarter around $1 trillion, which means a drop to 2003 and early 2004 asset levels.

The sharp declines and volatility in the stock market had many life insurers on alert as their most-promoted products such as variable annuities, pitched to people nearing or in retirement, are linked to equity-market performance. Experts predicted last fall that if stock markets continued their descent, companies likely were to see lower sales of these retirement-income products (BestWire, Sept. 17, 2008).

Net sales, as opposed to total sales, are a key measurement because they show whether "new money" is being invested into VAs instead of people simply exchanging their money from one contract to another. For 2008, net sales dropped 30% to $23.1 billion and represented 14.9% of total sales, according to NAVA and Morningstar.

"2009 is shaping up to be a tough year for the millions of baby boomers who have already seen the value of their retirement assets plummet," Weatherford said. "Safeguarding retirement nest eggs may well become the most important issue on the minds of every retirement-minded American."

However, NAVA remains confident that interest in variable annuities will continue to grow, according to Weatherford. "Living benefits" are optional riders that include secure lifetime income and investment protection of principal, she said. "They provide the measure of safety and peace of mind that is unavailable in any other investment product."