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The variable annuity industry's first quarter sales came in at $26.2 billion, a figure that is only 23% of last years total premium flow of $112.8 billion.
In last years third quarter commentary (see NU, Dec. 3, 2001), we estimated a potential growth rate of approximately 7% on 2002 total flow, which would yield a sales level of $121 billion. Now that we are well on our way into the year, it is clearly evident that issuers will not meet such an aggressive increase.
New sales for the first quarter were $25.5 billion, with internal exchanges of $674 million. Internal exchanges of 3% in this quarter are on the lower end of the quarterly historic average. The positive news on total flow might be the fact that product exchanges could be on the decline.
As for revised projections for this year, it now appears that we are, first and foremost, just shooting to beat last years total flow amount.
First quarter VA assets of $891.5 billion posted a 0.7% increase over 2001 year-end assets of $885.4 billion. Of the Top 25 VA Issuers, 64% posted positive first quarter asset growth. This is a significant improvement over 2001s year-end issuer results, where only one company out of the Top 25, Pacific Life, posted positive asset growth for the year.
Standout first quarter issuers with noticeable growth of overall VA assets include Allstate Financial (6.8%), Pacific Life (3.7%), New York Life (3.7%), and Manulife (3.2%). Current VA assets need to rise a little over 9% to hit the largest-ever year-end total of $973.5 billion from 1999, although industry assets did hit the $1 trillion mark in 2000.
Variable annuity net sales declined 31.9% in 2001 to end the year at $29.9 billion. Net sales of $43.9 billion in 2000 were 32% of the years total premium flow of $137.2 billion, as compared to last years net sales percentage of total flow of 27%. These statistics do include VA contract assets from the fixed/general interest accounts of the issuers, as well as all variable contract subaccounts.
It is important to remember that while an individual contract or issuers total premium flow is a traditional gauge of a product or companys sales success in the market, it does not reflect the asset drain from surrenders, withdrawals and investment performance.
These net flow statistics were compiled by The VARDS Report on behalf of NAVA and were announced on May 22, 2002.
One traditional yardstick of determining sales momentum has been the issuers sales ratio as found in the tables accompanying this article. Generally speaking, in the first quarter a sales ratio of 25% or higher might indicate sales momentum that was on track to equal or exceed the prior years sales. Eleven issuers in the first quarter had sales ratios of 25% or higher. In order of new sales rank these firms include TIAA-CREF (26.9%), Metlife/NEF/GenAm/MLI (31.9%), AEGON/Transamerica (32.9%), Lincoln National (26.7%), Manulife Financial (27.1%), Sun Life Financial/Keyport (27.8%), Allmerica Financial (27.6%), IDS Life (25.0%), The Prudential (29.5%), Phoenix Life (27.2%), and Allianz Life (50.7%).
At year-end 2001, only four issuers had equaled or exceeded their prior years sales.
In the category of Top 25 variable annuity contracts ranked by new sales for the first quarter, sales momentum has been on the rebound since year-end 2001. Last year only four VA contracts equaled or exceeded their previous years sales. Using the sales ratio benchmark, last quarter there were 15 VA contracts (60% of the Top 25) with sales ratios of 25% or higher. Of this group, seven contracts had strong sales ratios in excess of 35%. In order of new sales rank these contracts include Pacific Lifes Pacific Innovations Select (38.2%), Hartford Lifes Director Outlook (39.5%), Transamerica Lifes Landmark Variable Annuity (63.8%), Manulifes Venture III (172.5%), Sun Life/Keyports Keyport Vista (68.3%), The Prudentials Strategic Partners Annuity One (47.4%), and Phoenix Home Lifes Phoenix Retirement Planners Edge (58.8%). The Top 25 VA contracts account for 47% of the industrys total new sales.
Last quarter VARDS conducted a Variable Annuity Broker Dealer Distribution Study to identify factors influencing product distribution within the national wirehouse, regional and independent sales channels. The study included a focus on the identification of both the factors and processes associated with 1035 exchanges and the attitudes of senior management on the practices employed in both the sale and conservation of variable annuity contracts. The study employed senior management interviews as well as analysis of survey responses and primary data found within the VARDS product databases.
