Prudential Financial Inc. (PRU:US), the top seller of variable annuities, said Wall Street should appreciate the fees the life insurer makes on the retirement products, even as some competitors cut sales to reduce risk.
“We’re getting more than 2 percentage points of fees from the assets that are part of our annuity business,” Mark Grier, Prudential’s vice chairman, said at a Citigroup Inc. (C:US) financial- services conference in Boston today. “In your businesses, you probably would dance in the street over 40 or 50 or 60 basis points.” A basis point is 0.01 percentage point.
The insurers who have added sales or gained market share over the past two years have sought to assure investors the returns on variable annuities justify the risk, after the industry was stung by losses on the products in the financial crisis. MetLife Inc., which was the No. 1 variable annuity provider in 2011, is among companies reducing sales after low interest rates and stock-market volatility weighed on results.
Savers in variable annuities can invest in assets such as stocks and bonds and purchase income or return guarantees. The liabilities on the policies climbed for insurers when stock markets plunged.
Prudential was the No. 1 seller of the products in the first nine months of 2012 and the Newark, New Jersey-based company increased fees and reduced the guarantee to improve returns.
“The quantitative evidence is that that pricing is sustainable in the market,” Grier said today. “People want to pay for the features that these products provide and they’re willing to pay those kinds of prices.”
Prudential advanced 0.3 percent to $56.95 at 4:15 p.m. in New York. The company has slipped 4.7 percent in the past 12 months, compared with the 2.3 percent drop at MetLife.
Prudential sold $16.2 billion of individual variable annuities in the first nine months of 2012 while MetLife sold $14.1 billion, according to data from industry group Limra.
MetLife has said it’s targeting 2013 sales of no more than $11 billion, as Chief Executive Officer Steven Kandarian concentrates on business that aren’t as capital-intensive. The company cut guarantees last month, according to a presentation at a Bank of America Corp. conference.
“We’re really working our way down the risk curve on this product,” Kandarian said at the conference. “It’s still a good business if we get the risk profile correct.”
American International Group Inc. boosted variable annuity sales last year. Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., bet on liabilities tied to the savings products in a reinsurance deal with Cigna Corp. last month.
“It’s very encouraging to see smart money coming back into the variable-annuity space.” Dennis Glass, CEO of Lincoln National Corp. (LNC:US), said on a conference call with analysts last month, after Buffett’s deal. Radnor, Pennsylvania-based Lincoln ranked fifth in variable annuity sales in the first nine months of 2012, the same as in the year-earlier period.
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