New sales of variable annuities totaled $40.9 billion in the first quarter of 2008, a 12.4% decrease from fourth-quarter 2007 new sales of $46.7 billion, and a 1.2% increase over first-quarter 2007 new sales of $40.4 billion. Assets under management (AUM) as of December 31, 2008 dropped 5.9% to $1,396.5 billion from the Dec. 31, 2007 AUM of $1,484.0 billion.

Assets were down less than 1% from March 31, 2007's total AUM of $1,397.8 billion. Net flow was also down in the first quarter, to $7.2 billion from $9.0 billion in the previous quarter—a 20.1% decline. On a year-over-year basis, however, net cash flow showed a 12.3% increase.

Once again, AXA Equitable held the No. 1 spot in variable annuity sales, with $3.6 billion in total new sales and 8.8% market share for the quarter. The rest of the top five companies were TIAA-CREF, with $3.5 billion in new sales and 8.6% market share; ING Group of Companies (a new entrant to the top five) at $3.5 billion and 8.5%; MetLife at $3.2 billion and 7.8%; and Lincoln National at $2.9 billion and 7.2%.Sales of the top 25 variable annuities during the first quarter of 2008, including group products, totaled $21.4 billion, representing a market share of 52.3%.

Top Retail

The top retail product was John Hancock's Venture III, with more than $1.12 billion in sales and a 2.75% market share. Venture III has total base insurance charges (M&E, administrative and distribution) of 1.65%, and offers enhanced death and living benefits, including "for Life" GMWB and GMAB/GMWB riders.

Other first-quarter 2008 top sellers were ING's Golden Select Landmark (new sales of $1.12 billion and market share of 2.74%); RiverSource's RAVA 4 Advantage ($1.06 billion new sales, 2.60% market share); AXA Equitable's Accumulator Elite 2007 ($1.03 billion, 2.52% share); and American Skandia's Xtra Credit Six ($0.96 billion, 2.36% share).

Product Trends

As of this writing, Morningstar is updating the 1,200-plus variable annuity contracts in its database. While we have not yet compiled and reviewed all the changes, some interesting product trends have emerged.

The linking of death and living benefits with respect to withdrawals, where election of a guaranteed minimum withdrawal benefit extends dollar-for-dollar withdrawals to the death benefit value when withdrawals are kept within the limits prescribed by the living benefit, has been incorporated into benefit structures by several companies, including MetLife, Lincoln and Hartford. This structure is also available from some companies attached to a maximum anniversary value death benefit, although generally for an additional charge. AXA-Equitable, Transamerica and Genworth are examples of companies that offer this arrangement. Look for more innovations like these, which continue to position variable annuities as investment vehicles designed to generate income, preserve capital and contribute to bequeathment goals.

Frank O'Connor is director of insurance solutions at Morningstar.