Investor demand for variable annuities has grown as a result of significant market downturns. In the third quarter, net sales of variable annuities reached a record $8.8 billion with $2.27 billion in sales by Raymond James Financial Services, Inc. alone.
Many investors looking for a steady stream of retirement income have turned to variable annuities. However, the volatile equities market as well as, the extended low-interest environment has made it difficult and expensive for life insurance companies to hedge variable annuities with living benefits. As such, 2011 found multiple life insurers exiting the variable annuity market or doing away with many of the living benefits that made variable annuities attractive to investors.
Genworth Financial, Inc. and Sun Life Financial, Inc. both announced that they would no longer be involved in variable annuities sales. Similarly, Jackson National Life Insurance Co., MetLife, Inc., Prudential Financial, Inc. and John Hancock Life Insurance Co. announced a significant scale back or elimination of many of the living benefits that made the products so attractive to investors.
These moves by insurers will mean less price competition among the companies still in the variable annuity market. Increased investor interest in the product coupled with a decrease in the products available surely looks to make 2012 a seller’s market for variable annuities.