Annuity FYI Visitor Blog

According to Investment News’ article “NY Life tops 2Q list of fixed-annuities sellers” by Darla Mercado, fixed annuity sales increased from the first quarter of this year to the second quarter.  With sales of $19.4 billion in the second quarter, fixed annuity sales increased 18% from the first quarter but went down 30% from last year.  New York Life Insurance Co. sold $1.74 billion of fixed annuities to nab the top sales spot.  Allianz Life Insurance Co. of North America had the second largest fixed annuity sales of $1.68 billion.  With sales of $1.61 billion, Aviva USA had the third highest sales.  AIG’s subsidiary Western National Life had the fourth highest fixed annuity sales of $1.29 billion, while the fifth highest sales of $1.05 billion were from American Equity Investment Life Insurance Co.

Many believe that the widening spread between fixed annuity rates and Treasury rates is accounting for the increase in fixed annuity sales.  The wider spread also makes it more profitable for insurance companies to handle fixed annuity business.  While fixed annuities have been harder to sell recently, there has been quite an increased interest in fixed indexed annuity products because of their cap rates.  Variable annuities have also seen a sales increase, according to multiple reports.  The $34.4 billion of variable annuities sold this past quarter was an increase from $31.8 billion last year.  New variable annuities sold this quarter totaled $6.22 billion, up from $6.14 billion last quarter.  An increased interest in both variable and fixed annuity products means that investors are looking for secure ways to ensure that their income lasts for the remainder of their lifetime.

Prudential Financial Inc. and American International Group Inc. contributed to the United States’ largest variable annuity sales increase since 2007.  According to Bloomberg’s “Variable-Annuity Sales Rise 11% as Prudential, AIG Post Gains” by Inyoung Hwang, the $35.5 billion in sales was an increase of 11% for the second quarter of this year.  Prudential sold $5.3 billion of variable annuities to capture the top spot in sales.  This was a huge increase from their $3.38 billion in sales during the second quarter of last year.  Limra International believes that the market is showing signs of recovery since most of the top 20 companies had growth in their variable annuity sales.

After AIG was helped by the federal government, they increased their variable annuity sales 45% from $1.09 billion to $1.58 billion.  AIG was able to increase their operating profit by 17% after the profit from their U.S life insurance businesses quadrupled from last year’s profits.  The second highest sales of $4.5 billion belongs to MetLife Inc., although they experienced a very small decline from the same period last year.  Annuity rates and other factors contributing to the variable annuity sales affected the top companies differently.  The third and fourth place sellers were TIAA-CREF and Jackson National Life.  The industry is hopeful that this second quarter increase will continue into the future.

Prudential Financial Inc. and Jackson National Life Insurance Company have seen a large increase in their variable annuity sales through banks.  Prudential has seen the majority of their overall growth come from new channels of distribution, rather than their past sales channels.  Their second quarter variable annuity sales were $5.31 billion, which was an increase from $3.37 billion in the first quarter of this year.  While they saw a decline in their fixed annuity sales and after-tax adjusted operating income, Prudential is very happy with the prospect of growing their variable annuity business while they work to increase the other sales.

A combination of Prudential offering some of the best variable annuity guarantees and compensating advisers well has most likely led to this recent increase.  As the markets became more volatile and interest rates fell, many companies significantly reduced their variable annuity business, allowing Prudential’s Highest Daily variable annuity to top the sellers list last year.  Prudential has even reduced some of their benefits because of the low interest rates, changing their Highest Daily Lifetime 7 to the Highest Daily Lifetime 6 last summer.  Their pricing model is evaluated frequently and can be changed a few times a year if they find that necessary.

Prudential is open to purchasing other companies in order to expand their business, but stated that they have no definite plans to do so.  Their top goals would likely be to expand business in Japan and the U.S. retirement industry.  Selling the best annuities and other products in their marketplace always remains important, so any acquisition would have to follow their model.  AIG’s Star Life Insurance Co. Ltd., AIG Edison Life Co., and ING all seem to be possibilities for purchase by Prudential.

Investment News‘ Darla Mercado summarizes the variable and fixed annuity sales of 2009 in her article “Banks’ annuity fee income rose, FA sales fell in ‘09 3Q.”  Through the first three quarters of last year, bank holding companies saw the fee income from their annuity sales increase.  The sale of fixed annuities however, decreased in the third quarter due to their decline in popularity through 2009.  With $2 billion in fee income from variable and fixed annuity sales during the first three quarters of 2009, banks saw a 2.5% increase from the same time frame during the previous year.  Commissions increased 4% during the third quarter, according to a report of the top 922 bank holding companies.  Overall, 71% of the largest banks accounted for almost 95% of the total annuity commissions.

Wells Fargo held the top spot even though their income was actually down from the comparable period in 2008.  In second place was JP Morgan Chase & Co who also saw a decline from 2008, albeit a small one.  Regions Financial Corp. and Bank of America Corp. saw the largest gains in annuity fee income during the three quarter time period.  Western National Life was the largest seller of fixed annuities, despite the product taking an overall decline in the third quarter.  Three companies made their way onto the top 10 list of bank annuity sellers last year.  Jackson National Life Insurance Co., ING USA, and Hartford Life Insurance Company came onto the top ten list in 7th, 8th, and 9th places.  Annuities hold strong as important financial products, despite some declines in the fixed annuity sales.

In the Chicago Sun-TImes, David Roeder describes why there is “Little payoff seeking the next Google.”  He summarizes some of the latest financial news and goings-on.  Financial guys on TV always seem to be looking for the next company that will start from nothing and skyrocket to success, like Google or Apple.  But looking into the past 10 or so years, the companies with the highest expected growth potential actually had the worst annualized returns.  It seems that the lowest expectations in the stock market actually provide for the best investments.  There are some large companies whose stocks are being recommended by Chicago Investment banks like William Blair & Co.  Others are looking to invest in products that teenagers love: food & entertainment included.

Companies like MetLife, Hartford Financial, and AIG look to benefit from the Obama administration’s new recommendations.  They are looking to introduce rules that will push retirees to 401k annuities rollovers.  Currently only 2% of people with 401k’s convert them to an annuity in retirement.  Since annuities help to counteract the risk of outliving one’s savings, the government believes that this guaranteed income will help Americans through retirement.  Finance information is all over the news and has even seeped into the entertainment world.  A new documentary entitled “Floored” about the Chicago trading floors is playing in Chicago.  With the renewed public interest in financial freedom, information about stocks, annuities, and retirement is at the forefront of America’s publications.