Variable annuities burned insurers in the financial crisis, when tumbling stocks increased liabilities. MetLife Inc. and Prudential Financial Inc. are reducing sales of the contracts, and others have exited the market.
MetLife, the largest U.S. life insurer, favors growth in emerging markets and products that provide protection and aren’t as capital-intensive. Variable-annuity sales through September fell 37% to $8.89 billion at the New York-based insurer from a year earlier, Limra said.
At No. 2 U.S. life insurer Prudential Financial, variable-annuity sales dropped 44%. Reinsurance deals “haven’t been as compelling” as other strategies for managing risks from the guarantees, Charles Lowrey, chief operating officer of Prudential’s U.S. unit, said on a Nov. 7 conference call with analysts.
Hartford Financial Services Group Inc. has stopped selling variable annuities, while ING Groep NV, Aviva Plc and Sun Life Financial Inc. have been divesting U.S. life insurers that sold retirement products.
American International Group Inc. has been boosting sales. AIG, based in New York, was the No. 5 seller of the contracts in the period as sales jumped 35% to $8.94 billion.
“The combination of a relatively small legacy block and enhanced risk controls in our current features has allowed us to capitalize on opportunities when competitors have chosen or been forced to pull back,” Jay Wintrob, CEO of AIG’s life insurer, said on a Nov. 1 conference call with analysts.
Jackson National’s variable-annuity sales in the period were little changed from $15.3 billion a year earlier. The U.S. unit has a “great future” with London-based Prudential, CEO Tidjane Thiam said this month.
Profitability on the variable annuities has improved this year as stocks rallied. At Lincoln, the return on equity at the annuity unit climbed to 25% in the first nine months of the year from 19% in the same period of 2012. When the market crashed in the last three months of 2008, the unit posted a $171.7 million loss.
Lincoln has advanced 92% this year in New York trading, the second-most in the 21-company Standard & Poor’s 500 Insurance index. Prudential Financial, based in Newark, New Jersey, has gained 67% and MetLife is up 59%.