With the equity markets’ recent woes in the past, variable annuity sales perked up in 2010, according to the Insured Retirement Institute, in Washington, D.C.
According to data compiled for IRI by Morningstar, Inc., new sales were $136.6 billion in 2010, up 10.3% from 2009, when new sales totaled $123.9 billion. What’s more, assets reached an all-time high of $1.5 trillion, finally lifting the variable annuity industry above the pre-crisis levels of the third quarter of 2007.
“This is all new money,” notes IRI president and chief executive officer Cathy Weatherford. “We are on the front end of a curve of tremendous growth.”
Consumer reticence toward variable annuities, which are essentially tax-deferred investment vehicles wrapped in insurance contracts, seems to be fading, according to Weatherford. “I think everybody was in paralysis for a while,” she says. “But now people are figuring out how to position their portfolios to try to enjoy some growth.
In other highlights from the IRI report:
- Consolidation within the variable annuity industry continued in the first quarter of 2011, with the announcement that Genworth Financial will exit the business.
- In a noteworthy new product development, Western & Southern Financial Group issued VAROOM, or Variable Annuity for Roll Over Only Money. The product offers individual exchange-traded funds from iShares and Vanguard as subaccount options. Until now, ETFs were available in variable annuities only through a fund-of-funds structure. VAROOM carries a lifetime guaranteed minimum withdrawal benefit rider with a fee of 60 or 80 basis points, depending on the asset allocation chosen. The product is available for qualified money only as an IRA for tax-qualified rollovers. The Lifetime GMWB offers 4.5% at age 65 with a highest anniversary value step-up.
- Also in the first quarter, the variable annuity industry’s focus on the fee-only market continued. SunLife issued a no-load contract, one that offers an optional lifetime GMWB rider that allows 5% withdrawals for a 65-year-old individual. SunLife is one of five carriers on LPL’s newly established fee-only variable annuity platform, along with Allianz, AXA, Lincoln and Prudential.
- AXA has also created a version of its Retirement Cornerstone contract for the fee-only market. The total insurance expense on the contract is .65% and the contract carries only a Lifetime GMWB option and a death benefit with the three common step-up methods.
- The first quarter also saw the release of multiple lifetime GMWB riders. For example, John Hancock released one with a 5% withdrawal for a 65-year-old. Ohio National also released a lifetime GMWB with a 5% withdrawal for a 65-year-old.
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