Annuity FYI Blog

According to NASDAQ article “Positive Outlook for MetLife Annuity Sales,” the Trefis Team says that MetLife’s new variable annuity has accounted for over a $1 billion in sales in just one year.  MetLife teamed up with Fidelity Investments to offer the MetLife Growth and Guaranteed Income (MGGI) variable annuity, which is very popular among investors.  MetLife offers many different annuities, insurance products and retirement plans.  Their main competition comes from Prudential, AIG and Hartford.

The Trefis Team estimates MetLife’s stock price at $48.83 and they say that 17% of that can be attributed to the company’s annuity sales in the U.S.  That price estimate is about 10% higher than the market price because of MetLife’s improved outlook.  They had the second highest annuity sales in 2010, selling close to $21 billion.  Variable annuity sales were more than $18 billion and fixed annuity sales were just over $2 million.  Although MetLife saw a decline in fixed annuity sales, their variable annuity sales increased by 19%.  Prudential was the only company to have higher annuity sales in 2010, with sales over $23 billion.

Fixed annuity sales saw a large decline last year partly because of the large increase they saw in 2008 and 2009 during the economic crisis.  Investors were looking for less risky investments and sought the comfort of fixed annuities.  As investors switched back to taking on more risk, they went back to variable annuities hoping to see large increases in their investments.  Overall variable annuity sales in the market increased 11% in 2010, while fixed annuity sales decreased.  The total annuity premiums for MetLife last year were $875 million, which was an increase of 40% over their total annuity sales in 2009.  The Trefis Team expects continued growth in annuity sales for MetLife.

With the hiring of Steve Kluever from Jackson National Life Insurance Co., The Hartford Financial Services Group Inc. hopes to increase sales of their variable annuities.  Investment News’ Darla Mercado writes about the surprise transition in “The Hartford nabs VA exec from Jackson.”  Since Hartford and Jackson have taken very different approaches to business following the financial meltdown of the past few years, many industry insiders were surprised by this transfer.  Kluever will head a new position at Hartford as the vice president of annuity product and marketing.  In 2006 Hartford was the fourth largest seller of variable annuities, but fell drastically after the economy went sour.  They hope to come back from their significant variable annuity hedging losses with this new hire and position within the company.

Hartford was in 20th place last year in their sales of variable annuities, quite a jump from their fourth place status four years prior.  Jackson, on the other hand, was the third largest variable annuity seller, likely due to their approach to product development in the past few years.  Jackson’s financial advisors and clients have around 100 variable annuity subaccounts from which to choose, while Hartford chose to lessen the risk in their product line.  While Hartford has to be careful about the changes they are making to increase their variable annuity presence, they are starting slowly by adding annuity wholesalers and enhancing their Personal Retirement Manager variable annuity soon.  Working 401k annuities into their plan might also be an effective way to increase sales since even the federal government is suggesting these retirement products to help Americans combat longevity risk.

While more Americans than ever are depending on Social Security to fund their retirement, most of those recently surveyed don’t think that the money they receive will be enough to live on.  The study was performed by Hartford Financial and could mean big business for their annuity sales.  Annuity News Journal’s article “Social Security Becoming More Important” by Errol Baddoo highlights the results of Hartford’s survey.  Forty percent of those surveyed think that Social Security will be their most important source of retirement income, but eighty-five percent of people don’t think that Social Security will cover all of their living expenses.  This discrepancy means that Americans need another way to finance their retirement to supplement Social Security payments.  Hartford Financial and other insurers hope that annuity products will be that bridge.

Seventy-five percent of those surveyed think that it is their own responsibility to plan for their retirement and are not expecting the government to carry them through.  Purchasing an immediate annuity with savings, 401k, or other funds can help cover basic living expenses in retirement.  Hartford and other insurers have options for fixed annuities, variable annuities, indexed annuity products and others that allow investors many options with low risk.  The recent decline in the economy has made Social Security even less attractive because of tremendous losses.  Annuity products are expected to have a large increase in sales going forward as investors look for products with both lower risk and better guarantees.  Decreases in annuity sales in 2008 and 2009 have already led to increasing sales in 2010.

Increasing annuity sales and an improving stock market helped Hartford increase its share price to almost $25, up close to 5%.  This information comes from Christi Roberts’ article in Annuity News Journal, “Hartford Shows Strong Earnings.”  Hartford’s third quarter income was $666 million, a huge improvement over the net loss of $200 million that they saw last year at this time.  While financial analysts predicted that Hartford would make 98 cents per share, they actually made $1.34 per share.  Hartford’s core earnings, those ignoring investment losses or gains, were $1.43 per share.

The deferred acquisition costs tied to variable annuities earned $166 million in income, accounting for 34 cents per share.  As the global equity market saw an increase, so did Hartford’s deferred acquisition costs relative to variable annuities.  The fees charged for variable annuities pay for the cost of selling those annuity products and are called deferred acquisition costs.  Any increase in the stock market, especially that above what analysts predicted, results in an increase of income for the company selling the annuities.  The improvements within the stock market helped Hartford with both their deferred acquisition costs and their share price increase.

In Jeff Benjamin’s Investment News article “Five ways to boost retirement income,” immediate annuities are at the top of the list.  The best way for retirees to make the most of the retirement savings they have built is to have diverse yet safe investments that will continue to generate income even in retirement.  By establishing a steady income stream that will carry you through rough economic times, you will be able to have the flexibility to manuever through assets with some risk to generate income in retirement.  Five investments that can help those of retirement age with their steady and reliable income stream are immediate annuities, individual bonds, reverse mortgages, convertible bonds, and master limited partnerships.

As the demand has increased for immediate annuities, they have become easier to understand for everyday investors.  A single-premium immediate annuity is one of the best ways to obtain guaranteed predictable income.  For investors who have already retired, the author recommends a simple no-load version without added riders like death benefits.  While your monthly income from the annuity may seem low, experts recommend using a portion of your retirement savings for an annuity and using that payout for everyday expenses.  Then the rest of your savings can be put towards other income growing investments.  New York LIfe, MetLife, Hartford, Nationwide, and John Hancock are some of the post popular insurance companies that work with annuity products.