Insurance Companies, Chastened but Hopeful, Dip Into Annuity Market

They're back.

After taking a hammering during the recession, there are signs of life again in the market for variable annuities.

Fixed annuities, which are insurance products based on bonds, have been in vogue since the start of the recession in 2007. Over the same period, variable annuities, which are based on stock market performance, have gone out of fashion. Now several life insurers, such as Axa Equitable, The Hartford and Allstate, are rolling out new products.
In the old days--that is, 2006 or so--some insurers offered "guarantees" of six percent a year or more on their annuities, and took huge hits when the market didn't live up to their expectations. Having learned a painful lesson, insurance companies are marketing two types of variable annuities: One eliminates most of the guarantees, the other raises the price to pay for them.

Axa Equitable is offering a dual-account product to maximize performance and protect assets. The Hartford, which was hurt the worst in the financial crisis, is rolling out simpler products with fewer bells and whistles. "There is a significant demand building for products that are less expensive," said the insurer on its earnings call. CEO Liam McGee described his sales force as "enthusiastic" about the products.

On their fourth quarter conference calls insurers said that there is continued demand for variable annuities, even during the recession. Life insurer Lincoln National said variable annuity deposits rose 9 percent in 2009, topping out at $2.1 billion. Prudential talked about having a record year in the product. Even one of the biggest property insurers, Allstate, sees a "shift of resources" into variable annuities as it tries to expand product inventory.

This is partly attributable to the fact that low interest rates offer no opportunity to make money on fixed annuities, and a rebounding stock market makes variable annuities look better. In other words, investors with a long time horizon remain optimistic.

And so, apparently, do the life insurers that sell them. On its earnings call, Lincoln National CEO Dennis Glass promised to repay the $2.5 billion it owes in TARP money no later than early 2011. The Hartford's McGee said a "key element" of its strategy is to repay its $3.4 billion of TARP funding. No time frame was given, but he promised more news on Investor Day in April.