The Variable Annuity Market is Shrinking

It seems like every time I turn around another variable annuity (VA) provider is closing its doors. Sun Life, John Hancock, AXA, Genworth, and ING are among the companies which have either limited new contributions to one of their VA products, taken some other step to minimize exposure to the VA market, or completely exited the market. Meanwhile, that has translated into more premium dollars for big players like Prudential and Jackson National which have increased market share over the past year, according to Bloomberg Financial. The irony here is that VA sales in Q3 of 2011 hit $8.8B which was the highest level since Q3 of 2007.* One would think companies would want to enter this arena and compete for new dollars, not run the other way.


When Sun Life was asked why they exited the VA market in the United States, they cited “unfavorable product economics, which, due to ongoing shifts in capital markets and regulatory requirements, no longer enhance shareholder value.” Similarly, AXA sent a memo when they announced suspensions to contributions in their Accumulator product line. The memo similarly cited persistently low interest rates and high levels of market volatility making it financially ‘imprudent’ to accept new contributions on the favorable terms that were developed years ago in the context of a much different economic environment.

While the heightened market volatility and low-interest rate environment is bad for VA providers, that can translate to less desirable offerings for purchasers and some owners of variable annuities. The insurance companies may need to reduce guarantees and decrease other benefits to offset the uncertainty. Those benefit decreases usually come in the form of reductions on guaranteed payment amounts, reductions on the guaranteed accumulation amounts, or fee increases to maintain the same benefits offered to new contract holders.

Overall, I think the variable annuity will continue to be a popular vehicle in 2012. In my experience with clients, the benefits of guaranteed income and capital preservation are often preferable to getting the highest possible market return. Annuity products offer these benefits and I think will continue to sell well as a result.
As always, feel free to e-mail me with any question or comments.
Russell Bailyn

Wealth Manager
Premier Financial Advisors, Inc.
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673
rbailyn@premieradvisors.net

*Investment Advisor Magazine – November, 2011

Guarantees are based on the claims-paying ability of the issuer. Surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor’s unit, when redeemed, may be worth more or less than their original value. Optional riders may involve additional fees.

Variable annuities are sold by prospectus. For more complete information about underlying sub-account investment objectives, risks, charges, limitations and expenses, consult the prospectus which may be obtained from your financial advisor or the investment company. Please carefully read the prospectus before investing or sending money.

Specifics for each of the annuities discussed above can be obtained by contacting the insurance companies directly: Prudential – 877-458-6413: AXA – 800-789-7771: Jackson National – 800-644-4565: Sun Life – 800-786-5433: Genworth –888-436-9678: ING – 800-366-0066: John Hancock – 800-344-1029

Riders are optional add-ons that annuity buyers can choose, usually at extra cost. The two most popular types of variable annuity living benefit riders are guaranteed minimum withdrawal benefits (GMWBs) and guaranteed minimum income benefits (GMIBs). GMWBs guarantee to return 100% of the premium paid into the contract through a series of annual withdrawals. GMIBs establish a floor of future retirement income into which the contract can convert at the holder’s option. Rider benefits can vary by state, and not all riders are available in every state.

Variable Annuities are long-term investments designed for retirement. Withdrawals taken prior to age 59 ½ may incur a 10% federal tax penalty.

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

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