Conning and Co. Study Looks for Some Variable Annuity Insurers to Emerge from Downturn

Sales of variable annuities grew to $137 billion in 2000, but dipped drastically in 2001. Further, much of the sales activity in 2001 resulted from insurers trading assets with each other through contract “surrenders,” with the lower sales and the higher surrenders creating problems for insurers. However, focus on new customer acquisition strategies and aid from a revitalized economy may create a market rebound for annuity products, according to a new study from Conning & Company.

In the study, “Variable Annuity Marketplace: Thriving in Unfamiliar Terrain,” Conning & Company reports that surrenders grew 28 percent annually from 1997 to 2000, approxiamtely twice the rate of premium and deposit growth. (In the same period, premiums and deposits grew at an average rate of about 14 percent while expenses gained 13 percent annually.)

In the downward swing of 2001, however, Conning found the seeds of hope for variable annuity insurers. First and foremost, with a relatively small customer base, about 6 percent of the U.S. population, variable annuity insurers have an opportunity to attract numerous new buyers who are in a position to benefit from the product. Insurers’ current practice of selling primarily to existing annuity owners does not exploit the product’s potential or enhance their financial results.

Another key finding of the study is that marketing, product development and distributor relationships must be considered in the context of expense management. Insurers that apply their resources to identify segments of potential buyers, design products to meet their needs and align distribution to effectively deliver the products should see increased demand for their annuity offerings.

For more information on the study, log onto www.conning.com.