Life-Insurance Companies That Specialize In Variable Annuities May See Rough Times
What next from the folks who gave the world the morbidly named "guaranteed minimum death benefit"?</br></br>There isn't a guarantee, but analysts think life-insurance companies that specialize in selling variable annuities are facing rough times -- rough times that could lead to earnings disappointments -- in the form of slowing annuity sales and some variable-annuity policy benefits that are suddenly "in the money."</br></br>Companies such as Hartford Financial Services Group, Lincoln National and Nationwide Financial Services saw assets in variable annuities, which are essentially mutual funds in an insurance wrapper, shrink last year, due to poor stock-market performance and, for most companies, shrinking net sales figures. And unlike securities brokerage firms and mutual-fund firms with stock-market exposure, insurers have an added layer of risk. In recent years, many have essentially locked in certain levels of stock-market returns of their policyholders. Now, with the Standard & Poor's 500-stock index and the Nasdaq Composite Index 20% and 59% off their highs of last year, respectively, some of those promises are coming back to haunt the sellers.</br></br>The biggest earnings bite for variable-annuity sellers comes from the declining sales and assets under management. Variable-annuity net sales fell to $45.3 billion last year from $64 billion in 1999, according to the Vards Report, an industry newsletter. Morgan Stanley issued a report earlier this month estimating variable-annuity sales declined another 14% in the first quarter, and predicting a further 10% decline this quarter.</br></br>In the same report, Morgan Stanley analyst Nigel Dally says the sales decline would make it difficult for Lincoln National to achieve its goal of positive net cash flows in its individual variable-annuity business by year end. Failing to do that, he wrote, "could be a disappointment to the market." In recent weeks, analysts have cut Lincoln's first-quarter consensus earnings estimate to 90 cents from 94 cents, according to Zacks Investment Research.