New sales creep up
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New sales of variable annuities in the second quarter totaled $41.1 billion, up 2.5% from $40.1 billion in the first quarter. On a year-to-date basis through June 30, however, new sales of $81.9 billion lagged behind the $86.9 billion figure from the same period of time last year by 5.8%. TIAA-CREF regained the top position in new sales in the second quarter with an 8.86% market share. TIAA was followed closely by Metropolitan Life with an 8.63% share. ING came in third, also with an 8.63% market share and only $200,000 behind Metropolitan Life. AXA Equitable fell to No. 4 with an 8.60% share of the market, and Lincoln National held at fifth place with 7.6% of second- quarter VA sales.
The No. 1 and No. 2 non-group products in second-quarter sales were ING GoldenSelect Landmark and John Hancock Venture III, both L-share products distributed through third-party channels.
Among these, the strongest sales were through independent financial planners and wirehouse firms. Landmark ranked third in both the independent and wirehouse channels, while Venture III took the No. 1 spot among wirehouses and ranked fifth in sales among independent planners. The top five products in the wirehouse channel and the third-, fourth- and fifth-ranked products in the independent planner channel were L-shares; the first- and second-ranked products in the independent planner channel were those with purchase-payment bonus features.
The top 10 companies accounted for a slightly larger share of the market in the second quarter, year over year—71.3% versus 70.5% in the first half of 2007. This metric, however, has not consistently risen. In the first half of 2006, the top 10 companies accounted for 71.5% of new sales.
Assets under management were nearly flat from the end of the first quarter through the second. Assets as of June 30 were $1,406 billion, 0.11% higher than the March 31 AUM of $1,404.4 billion. Net flow increased the most among the three metrics, to $7.5 billion, compared with $7.2 billion in the first quarter of 2008—an increase of 4.2%. On a year-over-year basis, however, net cash flow declined from $15.6 billion to $14.7 billion.
The impact of recent market volatility will not be fully reflected in sales data until fourth-quarter figures are issued, but those numbers should be interesting, indeed. According to the Hewitt 401(k) Index, the volume of balance transfers in 401(k) plans on September 29 was 2.1 times the trailing 12-month averages, with 43% of those transfers going to stable value funds. Yet only 0.10% of assets were transferred. These transfers are likely weighted toward older participants, who tend to be concerned with capital preservation.
Still, more than one billion in real participant dollars were transferred at closing prices on September 29, after having lost 7% or more. These assets probably weren’t transferred back to equity funds until after the losses of September 29 had been recovered, if at all. And these may not be transferred back until further significant gains have occurred.
Assets in variable annuities with living benefits should not have experienced this phenomenon. Indeed, in many it is not possible to reallocate without losing the guarantee.
As it has been tiresomely pointed out in the popular press, there is no question that the fee structure of a typical variable annuity with a living benefit is a drag on performance relative to a similar portfolio in a no-load mutual fund. But the consequences of chasing positive performance and running from negative performance are potentially far worse.
