U.S. 3Q VA Sales Down 2% From 2Q Amid Rocky Stock Markets

Total third-quarter 2011 sales of variable annuities in the United States rose to $40.2 billion, an increase of 16% from the same period a year earlier, but fell 2% from this year's second quarter, according to LIMRA.

As the U.S. experiences a protracted low interest rate environment and "significant market volatility," some of the top annuity writers have adjusted their products and guarantees to mitigate the risks associated with the guaranteed living benefit riders on variable annuities, and "are carefully managing the amount of business they are willing to accept," said Joseph Montminy, assistant vice president for annuity research at LIMRA, in an email. While sales were 2% lower than second-quarter results, variable annuities "performed significantly better than the market, which was down 15%," said Montminy in a statement, noting equity markets in the third quarter "were the most volatile we have experienced since the financial crisis began in late 2008." In the third quarter, GLB riders were elected 88% of the time, when one was available at purchase, the industry research organization said.

Separately, the Insured Retirement Institute and Morningstar put third-quarter sales of these stock market-linked retirement savings and income products a bit lower — at $39.1 billion and up 14% from the same period a year ago.

When asked about the 2% drop in sales from the second quarter, Cathy Weatherford, president and chief executive officer of IRI, said in an email that, looking back over the past five years, particularly regarding variable annuity sales, the third quarter "has traditionally been a period when sales slow somewhat. That may simply be due to the fact it is the summer months, when people are more focused on their vacation plans rather than their portfolios."

Capturing first place was MetLife Inc. (NYSE: MET), with year-to-date sales of $21.2 billion, according to LIMRA. MetLife became the No. 1 seller of variable annuities in the second quarter, overtaking Prudential Annuities, which had dropped to second place (Best's News Service, Aug. 22, 2011).

In second place again was Prudential Annuities, a unit of Prudential Financial (NYSE: PRU), with year-to-date sales of $15.8 billion. Prudential became the top seller of variable annuities in 2009 (Best's News Service, March 16, 2010) and remained the leader in 2010 and in the first quarter of this year (Best's News Service, June 17, 2011).

Jackson National Life Insurance Co. ranked third with year-to-date sales of $13.7 billion, according to LIMRA. TIAA-CREF took fourth place, with year-to-date sales of $10 billion. Rounding out the top five was Lincoln National Life Insurance Co., a unit of Lincoln National Corp. (NYSE: LNC), with year-to-date sales of $7.1 billion, according to LIMRA.

Speaking during a recent A.M. Best Co. webinar, Ken Frino, group vice president of A.M. Best's life/health rating division, said variable annuities with guarantees and traditional fixed annuities are the annuity products that could be most impacted by low interest rates. To watch a replay of the webinar, "The Impact of Low Interest Rates on Life and Annuity Insurers," visit http://www.ambest.com/webinars/rates2011

In September, the Federal Reserve instituted its "Maturity Extension Program and Reinvestment Policy," or "Operation Twist." The "plan is to push long-term rates down to spur economic activity," said James Gillard, senior managing economist at A.M. Best Co. This may lead to small increases in short-term rates but the Federal Open Market Committee "is relying on poor economic conditions" and a commitment to keep the Fed Funds' rate at 0% until 2013 to keep short-term rates low (Best's News Service, Sept. 23, 2011).

Metropolitan Life Insurance Co. currently has a Best's Financial Strength Rating of A+ (Superior).

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