Lincoln National Corp. (LNC:US) topped $10 billion in individual variable annuity sales in the nine months ended Sept. 30, the most in at least six years, as rivals retreated from the contracts.
Sales surged 48 percent to $10.8 billion from $7.26 billion a year earlier, making Radnor, Pennsylvania-based Lincoln the second-largest seller of the products, according to data compiled by industry group Limra. Prudential Plc (PRU)’s Jackson National Life was No. 1 at $15.5 billion.
Variable annuities can guarantee that savers’ assets will appreciate, or help provide steady payments for retirees. Lincoln struck a deal last month to transfer some of the risks to a unit of San Francisco-based Wells Fargo & Co. (WFC:US)
“It’s a way for us to continue growing our annuity business while diversifying the block,” Brian Kroll, senior vice president of Lincoln’s annuity unit, said in an interview. “Right now is one of the best times that I’ve experienced in terms of selling variable annuities, from a return standpoint.”
Under the agreement with Wells Fargo’s Union Hamilton Re, Lincoln will offload half the risk tied to certain guarantees on as much as $8 billion in variable-annuity sales through 2014. The deal helps Lincoln reduce risk from long-term guarantees, Chief Executive Officer Dennis Glass said last month on a conference call with analysts.
“This was a very thoughtful and tactical decision,” Christopher Giovanni, an analyst at Goldman Sachs Group Inc., said in an Oct. 30 note. “It gives third-party validation for how derisked and profitable LNC’s VA product is.”
Variable annuities burned insurers in the financial crisis, when tumbling stocks increased liabilities. MetLife Inc. (MET:US) and Prudential Financial Inc. (PRU:US) are reducing sales of the contracts, and others have exited the market.
MetLife, the largest U.S. life insurer, favors growth in emerging markets and products that provide protection and aren’t as capital-intensive. Variable-annuity sales through September fell 37 percent to $8.89 billion at the New York-based insurer from a year earlier, Limra said.
At No. 2 U.S. life insurer Prudential Financial Inc., variable-annuity sales dropped 44 percent. Reinsurance deals “haven’t been as compelling” as other strategies for managing risks from the guarantees, Charles Lowrey, chief operating officer of Prudential’s U.S. unit, said on a Nov. 7 conference call with analysts.
Hartford Financial Services Group Inc. (HIG:US) has stopped selling variable annuities, while ING Groep NV, Aviva Plc and Sun Life Financial Inc. have been divesting U.S. life insurers that sold retirement products.
American International Group Inc. (AIG:US) has been boosting sales. AIG, based in New York, was the No. 5 seller of the contracts in the period as sales jumped 35 percent to $8.94 billion.
“The combination of a relatively small legacy block and enhanced risk controls in our current features has allowed us to capitalize on opportunities when competitors have chosen or been forced to pull back,” Jay Wintrob, CEO of AIG’s life insurer, said on a Nov. 1 conference call with analysts.
Jackson National’s variable-annuity sales in the period were little changed from $15.3 billion a year earlier. The U.S. unit has a “great future” with London-based Prudential, CEO Tidjane Thiam said this month.
Profitability on the variable annuities has improved this year as stocks rallied. At Lincoln, the return on equity at the annuity unit climbed to 25 percent in the first nine months of the year from 19 percent in the same period of 2012. When the market crashed in the last three months of 2008, the unit posted a $171.7 million loss.
Lincoln has advanced (LNC:US) 92 percent this year in New York trading, the second-most in the 21-company Standard & Poor’s 500 Insurance index. Prudential Financial, based in Newark, New Jersey, has gained 67 percent and MetLife is up 59 percent.
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