Variable Annuity Assets Fall 13% to $1.1 Trillion (Update2)

By Andrew Frye
Bloomberg News
March 18, 2009


March 18 (Bloomberg) -- Assets in U.S. variable annuities declined 13 percent in the three months ended Dec. 31 as stock markets plunged and savers scaled back purchases.

Total assets were $1.13 trillion at the end of 2008 compared with $1.3 trillion on Sept. 30, said NAVA Inc., a trade group for companies that sell the retirement products, in a statement today distributed by PR Newswire.

Life insurers, which often guarantee minimum returns on the variable annuities they sell, suffered as the decline in assets forced them to set aside more capital to fund potential future payouts to customers. Prudential Financial Inc., the second- biggest U.S. life insurer, and Hartford Financial Services Group Inc. both reported losses of more than $1.5 billion in the second half of 2008 amid costs tied to annuities.

Life insurers "have taken huge hits, overall, in their capital position," Joel Levine, senior vice president at Moody's Investors Service, said in a March 5 interview. "For some companies, the continued declines in the equity markets are going to continue to pressure their capital adequacy."

The Standard & Poor's 500 Index has slipped 40 percent in the last 12 months, eroding the value of variable annuity accounts. Newark, New Jersey-based Prudential is down 66 percent in New York trading over the same period, while Hartford has fallen 88 percent. MetLife Inc., the largest U.S. life insurer, has declined 57 percent.

Industrywide variable annuity sales were $33.3 billion in the fourth-quarter, compared with $47.8 billion in the year- earlier period. Sales for all of 2008 dropped 15 percent to $154.8 billion.

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