For the past few years the popularity of the variable annuity product has increased dramatically. These are frequently more highly preferred by investors because they provide more potential value than a traditional annuity. To take advantage of the new found variable annuity market, several insurance companies have made them available to the general public and marketed them heavily. Not surprisingly, the amount of VAs sold across the industry has increased dramatically. In 2010 the total amount sold increased by an estimated 10%, and up to over $140 billion worth of VAs.
While the sale of variable annuities continues to be a very good money maker for sellers of them, analysts are beginning to become skeptical about the company’s recurring ability to support those sales. Presently the three largest sellers of VAs are Met Life, Jackson National Life Insurance Co, and Prudential. Amazingly, those three companies account for over 40% of the total market of the sale of VAs.
While it may seem that these companies could keep it up, the underlying affects on the risk of handling these kinds of deals is concerning. To hedge against the risk, each company has their own strategy. Met Life claims to diversify against this form of investment and has given a high level look of their investment strategy. Jackson National Life has made public a frequently asked Q&A about how they are handling their risk and Prudential recently gave a similar piece of information to investors and analysts.
While all three of the major issuers of VAs have stated that they have their own form of risk management, how they are specifically managing the risk still remains to be seen. As a business practice none of the companies wants to give out too much information about how they are managing to reduce that level of risk.
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