Variable Annuity Market Outlook Hinges on Reprise

 

Thursday, Mar 05,2009, 11:51:12 AM   Click:

Variable Annuity Market Outlook Hinges on Reprise

Steve Garmhausen



Variable annuity sales sank in 2008, as the stock market swoon of the fear of investors.

Accordingly, insurers are raising prices and adding restrictions on products. But sales of variable annuities is expected to rebound once the market is, according to experts.

"The market healing faster than anything you," said Nancy Creedon, a principal of Deloitte & Touche LLP.

Industrywide, variable annuity sales decreased by $ 48 billion in the fourth quarter of 2007 to $ 38 billion in the third quarter of 2008, according to trade group Limra International. On the banking front, the Kehrer-Jackson monthly survey on sales of the Bank found that the respondents sold $ 2.3 billion variable annuity Octoberof in 2007, but only $ 1.3 billion in September 2008.

Variable annuity sales have skyrocketed in recent years by promises of guaranteed income to a crowd of baby boomers. On the way, insurance companies have conducted an "arms race" of guarantees in order to gain market share, "said Matt Wion, senior actuarial advisor with Ernst & Young Insurance and Actuarial Advisory Services practice.

But as the stock market turmoil related to 2008, insurance companies began reducing benefits and higher prices. One reason, experts say, was concerned that losses on annuities' underlying investments that prevent insurers from the following guarantees in the products and their riders. Another was the increased cost of hedging programs, which serve as a buffer against losses.

Firms with Axa Equitable Life Insurance Co. and ING Insurance Corp. of North America have increased costs and reduced customer choice for the underlying investments for products with guaranteed minimum income benefits. Others have announced plans to redesign products.

These changes seem to be an admission that these things were too good, "said Paul Sylvester, Senior Vice President of MetLife annuity Inc

MetLifesaid its third-quarter variable annuity sales through banks decreased by 9.4% a year earlier to $ 499 million. Itwill rider fee increase and to ask certain age requirements for services with new customers, "said Sylvester.

Nevertheless, there is reason to believe that the baby boomers, humiliated by the market dive, will pay for the promise of guaranteed income, according to Kenneth Kehrer, the director of Kehrer-Limra in Princeton, NJ

"The perception of the value of the VA office has been strengthened due to the sharp decline of markets," said Kehrer. "The fact that they are more expensive than they used to may not impact on sales."

Mr. Sylvester agreed. "I believe that these benefits are real, and there is a reason why they have a price to them," he said.

Sales of fixed annuities, they are removed. In September 2007, according to the Kehrer-Jackson, fixed and variable sales were the same banks sold $ 1.8 billion in cash and $ 1.9 billion variable annuity.

In September 2008sales of fixedannuities jumped to $ 2.9 billion, and sales of variables decreased to $ 1.3 billion.

Consumers have turned to fixed annuities as an alternative to certificates of deposit whose interest rate has been less attractive.

Insurance carrier issues have not been an obstacle to annuity sales, Ms. Creedon said. One reason is that the States' insurance funds would cover most of the investors in the case of a carrier's inability to honor its contracts, she said.

National Insurance Corp., a broker-dealer with 500 registered representatives in 24 states, is one of the distributors who trust their insurance company suppliers of product, "said Alan Lipson, president of National Insurance.

"We use only the A-plus-rated carriers," he said. "We will not retreat. Insurance companies should have a good year. "