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Last year was dismal for the industry, with sales dropping 15.1% to $154.8 billion for these stock-market-linked retirement income products. 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, April 15, 2009).
In a summary of the first-quarter results, Frank O'Connor, Morningstar's product manager, VA Database, wrote that assets under management also declined, falling 4.4% to $1 trillion from December 2008 assets under management of $1.1 trillion. The S&P 500 declined 11.7% over the same period, he wrote.
By individual companies, MetLife re-captured the No. 1 spot, with $3.7 billion in sales for the first quarter, according to Morningstar. In second place was TIAA-CREF, with sales of $3.5 billion; Axa Financial/MONY ranked third with nearly $2.9 billion in sales, while Prudential Financial/American Skandia/Allstate took fourth place, with sales of $2.1 billion. Rounding out the top five was John Hancock Life Insurance Co., with $2 billion in first-quarter sales, according to Morningstar.
"The data is slightly better than we expected," said Cathy Weatherford, chief executive officer and president of NAVA, the Association for Insured Retirement Solutions, in a statement. "Consumers should quickly turn to insured retirement solutions like variable annuities to dip their toes back in the financial waters but have some guarantees at the same time."
Throughout 2008, 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.
According to O'Connor, as of May, many significant changes occurred to variable annuity products, such as the restructuring of benefits, including fee increases and more conservative asset allocation requirements. "We expect to see any new products or riders launching during the summer months continue to offer lower guarantees, at a higher cost, and with less risk allowed in the portfolio," he wrote.
"While the products in the lab today will certainly offer less-lucrative benefits, the sobering reality of what negative returns can do to a portfolio (not to mention retirement plans) will help this industry grow, albeit less rapidly, in the coming months as more investors embrace the idea of creating a floor against losses for a portion of their investments," O'Connor wrote.
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
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