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Credit Crunch Looms in 2012, Analysts Say

Posted on March 17, 2010 by Editor Test -

Starting in 2012, more than $700 billion in high-yield corporate debt will begin to come due, causing concern among bond analysts, The New York Times reported.

Junk bonds are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014, up from only $21 billion in 2010. That will create what bond analysts call a “maturity wall.”

The concern is that the U.S. government—which must borrow or refinance an estimated $2 trillion in 2012—could absorb much of the available capital or push up interest rates, crowding out private borrowers and possibly causing defaults or bankruptcies.

“An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” said Kevin Cassidy, a senior credit officer at Moody’s Investors Service, which warned March 15 that the U.S. and other Western nations were moving closer to losing their gilded Aaa credit ratings.

On the junk bond side, private equity firms and many nonfinancial companies borrowed huge amounts on easy terms before 2007, with debt maturities of five to seven years. Many firms whose debt matured in 2009 and 2010 have extended their loans to 2012 and later.

The situation in 2012 could resemble the meltdown in mortgage-backed securities. In the mid-2000s, junk bonds were packaged into collateralized loan obligations, then hedged and used as collateral for still more risky loans. “The question is, ‘Should these deals have ever been financed in the first place?’” asked Anders J. Maxwell, a corporate restructuring specialist at Peter J. Solomon Company in New York.

That could hurt private equity firms like Bain Capital and Kohlberg Kravis & Roberts, who led leveraged buyouts in the pre-crisis boom. Hospital owner HCA, taken private in 2006 for $33 billion, must pay or refinance $13.3 billion between 2012 and 2014. TXU, a giant Texas utility, has to refinance $20.9 billion in that period.

Depending on the economy and the demand for high-yield debt, those high-risk borrowers could be crowded out of the debt market by better-rated borrowers, like the U.S. government and corporations with good credit.

The federal budget deficit in 2012 will total $974 billion, according to the Treasury Department, and $859 billion in old bonds will have to be refinanced. In both 2013 and 2014, the U.S. will need to raise $1.4 trillion.

Another $1.2 trillion in investment-grade debt will have to be refinanced between 2012 and 2014, including $526 billion in 2012. An estimated $59.7 billion in commercial mortgage-backed securities will also mature in 2012.

Target-Date CTFs: The Next DC Gold Rush?

Posted on March 17, 2010 by Editor Test -

Because of their low fees, flexibility and fiduciary structure, collective trust funds (CTFs)—particularly those that serve as vehicles for target-date funds—are the talk of the defined contribution world, according to Cerulli Associates.

The Boston-based research firm’s ongoing surveys show that asset managers’ interest in CTFs is driven by client demand and competition from peers. The structure of CTFs apparently gives them a leg up on mutual funds in target-date products.

Any bank that acts as trustee of a CTF by definition must act as a fiduciary for the fund’s assets. If pending regulations force investment managers to assume fiduciary responsibility over target-date funds, CTFs, unlike mutual funds, will already be providing this service.

Unlike 40-Act mutual funds, CTFs can invest in alternative asset classes, such as direct real estate. This means CTFs could invest in non-correlated asset classes, thus making them a better single-fund solution for target-date investors.

Alternative investments have not been used much in CTFs so far-a sign that the market is young or that trustees are reluctant to take on additional fiduciary risk.

CTFs aren’t filed with the Securities and Exchange Commission, so it’s hard to assess them. Cerulli encourages firms to participate in industry surveys and databases to increase transparency in this industry.

Other findings in Cerulli’s latest research report include:

In a recent Cerulli survey, 29% of respondents expect CTF asset growth in 2010 to increase by 20% or more and 53% believe it will increase by 10%-20%.
Cerulli projects $108 billion in private DB contributions for 2010-much of which is likely to flow into long-duration fixed-income investments.
Variable annuity hedging strategies have expanded to the investment options that underlie the insurance guarantees. This could create opportunities for asset managers with domestic small-value or fixed income experience.

The Superior Returns of an Illiquidity Strategy, 1972-2005

Posted on March 17, 2010 by Editor Test -

Milliman Offers Hedging Strategies to Distributors

Posted on March 16, 2010 by Editor Test -

Milliman, the global actuarial consulting firm that for years has been advising annuity manufacturers, has diversified its business strategy and is now working directly with financial products distributors.

While the firm continues, among other things, to assist insurance companies in creating variable annuity living benefits riders, the consulting firm will now also help wirehouses and advisory platforms offer customized hedging strategies for individual accounts.

“This is the first time that were working with the financial platforms. Our activity is basically identical but the kind of group that we’re working with has changed,” said Kenneth P. Mungan, Milliman’s Financial Risk Management Practice Leader.

He did not say which wirehouses or advisory platforms Milliman has started working with, but he indicated that they included some of the largest.

The new strategy was apparently catalyzed by the financial crisis and its aftermath. Individual investors are looking for a way to protect equity-rich portfolios going forward. Since diversification in commodities or real estate didn’t work last time, advisors and their clients are expected to be receptive to hedging strategies.

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“Individuals can go through advisory process with an unprotected portfolio, with complete exposure to the market. Or, at the other end of the spectrum, you have variable annuities with living benefits,” he said. Milliman sees a market opening up for a middle strategy, using uncomplicated hedges that would mitigate the effects of severe market downturns, without creating a huge drag on returns.

“We’re seeing the emergence of a client account on a platform with a protection strategy that would contain hedge aspects. So many people have withdrawn from the market. This would give them protection,” Mungan said.

Milliman would offer clients its economies of scale, its hedging experience, its technology base, called the Milliman Grid Computing Facility, and its ability to monitor risk 24-hours a day through trading floors in Chicago, London and Sydney.

The new strategy might appear to threaten annuity manufacturers, because wirehouse clients will be able to get their hedging programs straight from Milliman without having to buy it in the expensive context of a variable annuity with a living benefit rider.

But Mungan said that his group will create new business for insurance companies by enhancing demand for their unbundled living benefit riders, also called stand-alone living benefits or SALBs. Some of the clients who use Milliman-made hedges to protect their equity investments may want to add SALBs), which add protection against longevity risk by guaranteeing lifetime income.

“Under this model, the cost of the hedge for the insurance company drops dramatically, so that the customer could end up with the optional [lifetime income] guarantee at a lower price point,” Mungan said.

Besides the failure of diversification in the crisis, demand for Milliman’s new service is driven by low bond returns, and the prospect of low total bond returns for many years ahead in a rising rate environment. The third driver is the fact that Baby Boomers haven’t saved enough for retirement, and therefore have to invest in equities to reach their goals.

“Most investors haven’t saved enough money to invest only in bonds,” he said. “They would be locking in failure if they do.”

A March 1 article on Milliman’s website, “Challenges for financial advisors,” by Milliman project manager Matt Zimmerman, explains the new hedging strategies in general terms. The article describes a hypothetical hedged portfolio of large cap stocks that employs a “5% stop-loss rule” to lock in gains during a rising equity market. During a falling market, the hedge assets are intended to grow and the gains are “harvested” when they reach a “pre-set threshold.”

Part of the protective effect would be behavioral, Zimmerman wrote. The presence of an equities hedge would make investors less likely to panic and sell their stocks during a sharp downturn, since they know that the hedge, like a bungee diver’s cord, would prevent them from hitting bottom.

Breaking Up Is Hard to Do…

Posted on March 16, 2010 by Editor Test -

Clearly, the time has come to consider partition. The country’s sectarian rivalry has grown too violent. Its regional cultures are too incompatible. The rage runs too deep.

I’m not talking about Iraq or Afghanistan. I’m talking about the United States.

Partition will be difficult, no doubt. Mapping the new borders will require an army of high-tech Masons and Dixons. But could it be any harder than collaborating on health care or retirement policy? I don’t think so.

I propose that we combine the 19 states that currently have two Democratic senators into a new country, composed of AR, CO, NM, CA, OR, WA, NY, PA, ND, MT, VA, MN, WI, IL, DE, MD, NJ, HI and RI.

Then we should turn the 16 states that have two Republican senators into a second country. Its members would include AZ, AK, NV, WY, ID, TX, KS, MS, AL, GA, SC, ME, OK, TN, UT and KY.

States with divided senate delegations could be cut in two, King Solomon-style. Each state could work out its internal partition on a county-by-county or perhaps township-by-township basis. That won’t take long. VT and CT, which each have one independent senator, could bore a tunnel under MA and form their own country.

We’ve tried to live in harmony. Folks, it’s not working.

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Half of our society believes that the rich exploit the poor and the other half believes the poor ride free. One half believes in public policy and the other wonders what that is. One half believes that Treasury bonds are safe. The other half believes they’re toilet tissue.

Partition, in a sense, is already here. The Republicans have seceded into a passive-aggressive snit, unified by the belief that next fall the voters will reward them just for saying no. The Democrats are too philosophically heterogeneous to unite behind anything big. They divide and conquer themselves.

Sure, partitions can be messy. When India was partitioned in 1948, a few million Hindu and Muslim lives were lost. And when Stalin, Churchill and Roosevelt redrew the map of Eastern Europe at the Yalta Conference, the Poles, Czechs and Hungarians weren’t happy. But you can’t please everyone.

The borders of the two new countries look gerrymandered, I admit. But they won’t be any more convoluted than most of the school districts in my county. Smuggling could be an issue. Since the South is sure to abolish taxes, we can expect an epidemic of it. Speaking of epidemics, the free health care in the North will attract a lot of illegals.

Some of you may say secession is a bad idea, that we tried this once before. But that’s the beauty of it. Many of the legislators who refuse to recognize the Obama government come from same states that rejected Lincoln in 1860. We’ve learned from our mistakes and we’ll do it right this time.

The devil will be in the details. We’ll need to divvy up our warheads, reroute the natural gas pipelines and create new currencies. At this point we can only speculate about where President Gingrich will locate his new Sunbelt capital. But if we all work together, in a true spirit of cooperation, we can make partition work. Yes, we can.

The Empire Strikes Back

Posted on March 16, 2010 by Kerry Pechter -

The financial crisis exposed the weaknesses of 401(k) plans and sparked criticism that the employer-based defined contribution (DC) savings system is too expensive, too risky, and leaves too many Americans unprepared for retirement.

In response, the major 401(k) service providers—including several close competitors—have started a Washington-based trade organization to conduct research, promote their agenda and, specifically, to make DC plans more like defined benefit (DB) plans.

The Defined Contribution Institutional Investment Association, or DCIIA, unveiled itself earlier this month, in time to respond to a Labor Department request-for-information on income options in 401(k) plans. “We have consistently heard that now is the time to influence the public policy debate,” the group says in its statement of core beliefs.

Big insurers and investment firms like MetLife, New York Life, Goldman Sachs, PIMCO, AllianceBernstein and others have chipped in $15,000 each to belong to the DCIIA. Consulting firms like Hewitt, Mercer and Ibbotson have paid $3,500 a piece. Plan sponsors can join for only $1,000. The group has about 40 members so far. It will hold its first policy forum May 11 in Washington, D.C.

Stacy Schaus, the leader of the DC practice at PIMCO, the giant bond manager, and the DCIIA’s chair, told RIJ, “We’re looking at defined contribution asset management through a defined benefit lens. We’re asking, ‘How do we increase the likelihood that participants will meet their income goals?’ There are people who are saying that DC plans should be taken away altogether, so making these plans better is in our best interest.”

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“Our general consensus is that there are a lot of real positives in the defined contribution system, but that there are ways to build it and refine it,” added Lew Minsky, the DCIIA’s executive director. “We felt strongly that we can improve the investments in defined contribution plans by using institutional approaches. There’s no reason why large DC plans can’t look a lot like DB plans. For instance, the returns are better in DB plans and we want to close that gap.”

“DB-ization” of DC
In dedicating itself to the “DB-ization” of DC plans, the DCIIA intends to bring more of the investment practices and possibly the annuitization options of DB plans to 401(k) plans. DB plans, on average, are said to earn about one percent more per year than defined contribution plans—though it’s hard to imagine an apples-to-apples comparison.

That means greater use of collective trusts as a cheaper alternative to mutual funds, customized as opposed to off-the-rack target date funds, and “deemed IRAs” that keep employees’ assets in the plan even after the employees leave the company or retires.

A big part of the DCIIA’s mission is to lower the costs of 401(k) plans and make the fees more transparent. Collective trusts, or commingled funds, are one way to cut costs. Because they are not marketed to the public or filed with the Securities and Exchange Commission, collective trusts are about 25 basis points cheaper than mutual funds—but not necessarily more transparent. (See our news story in this issue, “Target-Date CTFs: The Next DC Gold Rush?”)

“About half of the defined contribution money is in mutual funds. But instead of mutual funds you could have custom funds or collective trusts or target date funds that are set up as collective trusts. Depending on the structure you hold the fund in, you can make it cheaper for the participant,” said Jody Strakosch, national director of Institutional Income Annuities at MetLife and a member of the DCIIA’s retirement income committee.

The group promotes the tools made possible by the Pension Protection Act of 2006, including default enrollment of participants, qualified default investment options, managed accounts, and default escalation of contributions. It is also expected to discuss strategies for protecting participants from the kind of volatility they experienced in 2008 and 2009.

“Certainly the defined contribution community as a whole is talking about whether there are methods to manage the volatility in DC plans,” said David Wray, president of the Profit-Sharing Council of America, an association of plan sponsors.

Custom TDFs and “Deemed” IRAs
Wider use of stable value funds might be one response to volatility. Another might be the expansion of customized target date funds to a broader audience. About one-third of DC plans with over $1 billion in assets now use bespoke TDFs, but smaller plans are said to face hurdles in using them.

“We know that more companies are managing their own target date strategies,” said Schaus. “Instead using off-the-shelf target date funds, more plan sponsors are opting for target date strategies that are plan-specific and whose holdings could be managed more actively.

“You could have someone determining how much money goes into the different asset classes or you can add asset classes to the menu. It would happen automatically behind the scenes so you don’t have to ask participants every step of the way,” she added.

DCIIA members also expected the latest behavioral finance tools in DC plans, like defaults, to expand coverage and increase account balances. “There’s a lot you can do with defaults and nudges that don’t take away the participant’s autonomy but lead to better outcomes. We want to create a system where the default is success and not failure,” said Minsky.

Deemed IRAs are another interest of the group. Also nicknamed “sidecar” IRAs, these are in-plan IRAs where former or retired employees can continue to benefit from the low costs of their plan while getting the flexibility of an IRA, including the ability to buy an institutionally-priced income annuity with part of their savings. Hueler Companies, which offers institutionally-priced income annuities to 401(k) plans through a web-based platform, is a DCIIA member.

Asset retention, always a priority for investment managers, is getting popular with plan sponsors, and deemed IRAs serve that strategy. More plan sponsors than in the past want to keep former employees’ money in the plan, Schaus said. It helps them maintain their economies of scale.

“There’s a conversation in the plan sponsor community about keeping money in the plan,” said David Wray. “As people reach retirement age, they’ll have higher balances. If they take their money out of the plan, it changes the demographics and reduces the sponsor’s ability to pay for the plan. Larger companies especially feel that people should stay in the plan, where the economies of scale are greater and the fees are lower.”

The DCIIA’s executive committee includes:

Stacy Schaus, PIMCO, Chair
Toni Brown, Mercer, Vice Chair and Secretary
Jim Sia, Wellington, 2nd Vice Chair and Treasurer
Kevin Vandolder, EnnisKnupp, At-large Executive Committee Member
Ross Bremen, NEPC, Public Policy & Legal Committee
Drew Carrington, UBS, Retirement Income Committee
Richard Davies, AllianceBernstein, Investment Policy & Design Committee
Mary Beth Glotzbach, Morningstar, Governance, Benchmarking & Communications Committee
Lori Lucas, Callan, Research & Surveys Committee
Laurie Nordquist, Wells Fargo, Trust & Recordkeeping Committee
Lew Minsky, DCIIA, Executive Director

Jackson Announces Record Sales, Profit in 2009

Posted on March 10, 2010 by Editor Test -

Jackson National Life Insurance (Jackson) achieved record sales and deposits of $15.2 billion and record International Financial Reporting Standards (IFRS) net income of $670 million in 2009, the company reported March 9.

Total sales and deposits were 8% higher than in 2008 and consisted entirely of retail products. Jackson’s 2009 IFRS net income increased from an IFRS net loss of $1.0 billion in 2008, primarily due to the positive impact of movements in non-operating derivative holdings.

A unit of Britain’s Prudential plc, Jackson sold $10.0 billion in variable annuities during 2009, compared to $6.5 billion during the prior year. Sales of fixed index annuities totaled $2.2 billion, up from $928 million in 2008.

To preserve capital, Jackson sold only about $1.6 billion in traditional individual deferred fixed annuities during 2009, compared to nearly $3.2 billion during the prior year. Annuity net flows (total premium minus surrenders, exchanges and annuitizations) of $7.9 billion in 2009 were 82 percent higher than 2008.

At December 31, 2009, Jackson had $4.0 billion of regulatory adjusted capital, more than eight times the regulatory requirements. Jackson has maintained the same financial strength ratings for more than seven years and, during 2009, all four of the major rating agencies affirmed Jackson’s financial strength ratings.

As of February 28, 2010, Jackson had the following ratings:

A+ (superior) A.M. Best financial strength rating, the second highest of 16 rating categories
AA (very strong) Standard & Poor’s insurer financial strength rating, the third highest of 21 rating categories
AA (very strong) Fitch Ratings insurer financial strength rating, the third highest of 24 rating categories
A1 (good) Moody’s Investors Service, Inc. insurance financial strength rating, the fifth highest of 23 rating categories

“The effectiveness of our hedging programs contributed materially to Jackson’s financial stability during 2009,” said Andy Hopping, Jackson executive vice president and chief financial officer. “Jackson’s variable annuity hedges sufficiently protected the company’s statutory capital, and the increase in value of our interest rate derivatives was a key driver of Jackson’s record 2009 IFRS net income.”

In 2009, Jackson sold $53 million in life insurance products, compared to $58 million in 2008. Jackson did not sell any institutional products during 2009, as the company directed available capital to support higher-margin annuity sales.

Jackson achieved top-four rankings in total annuity, variable annuity and fixed index annuity sales during full-year 2009. Jackson ranked:

Fourth in total annuity sales during 2009 with a market share of 5.9%, up from 11th and a market share of 4.0% in 2008.
Fourth in new variable annuity sales during 2009, with a market share of 8.1%, up from 12th and a market share of 4.3% in 2008.
Fourth in fixed index annuity sales, with a market share of 7.5%, up from 9th and a market share of 3.5% in 2008.
13th in traditional deferred fixed annuity sales, with a market share of 2.2%, compared to sixth and a market share of 4.5% in 2008.

Curian Capital, Jackson’s separately managed accounts subsidiary, accumulated more than $1.2 billion in deposits during 2009, up from nearly $1.1 billion during the prior year.

Platform enhancements, new distribution agreements and recovering equity markets drove quarterly deposits to a record high of $464 million during the fourth quarter of 2009, up 203% from the fourth quarter of 2008 and 22% higher than the third quarter of 2009. As of December 31, 2009, Curian’s assets under management totaled $3.6 billion, compared to $2.6 billion at the end of 2008.

Jackson’s affiliate, National Planning Holdings, Inc., a network of four independent broker-dealers, generated IFRS revenue of $611 million and IFRS net income of $3 million during 2009, compared to IFRS revenue of $608 million and IFRS net income of $9 million during 2008. The network reported gross product sales of nearly $14.1 billion in 2009, compared to $14.6 billion during the prior year. At December 31, 2009, NPH had increased its number of registered representatives to 3,478 from 3,165 at December 31, 2008.

Pacific Life Creates “Retirement Solutions Division”

Posted on March 10, 2010 by Editor Test -

Retirement Solutions Division is the new official name of Pacific Life’s Annuities & Mutual Funds Division. The full transition is expected to be completed by the end of 2010.

“The new name reflects the division’s diversified business mix and consultative wholesaling strategy,” said Dewey Bushaw, executive vice president. “The name change further defines the longer-term strategy of creating and bringing new and innovative retirement income products to the market and offering simplified lower-fee retirement product solutions that include variable and fixed annuities and mutual funds.”

The change also reflects a recent internal transfer of Pacific Life’s structured settlements and retirement annuities business to the division.

“We’ve evolved from just offering variable annuities,” Mr. Bushaw says. “The Retirement Solutions Division is uniquely positioned to offer a spectrum of retirement products designed for both retail and institutional clients. Our long-term focus will continue to emphasize the development and distribution of retirement and investment products that help protect retirement assets, provide growth opportunities, and create retirement security for investors.”

MetLife To Acquire ALICO for $15.5 Million

Posted on March 10, 2010 by Editor Test -

MetLife Inc. plans to complete its rumored acquisition of American Life Insurance Company (ALICO) from American International Group Inc. (AIG) for about $15.5 billion in cash and shares, the New York Times reported.

Founded in 1921, ALICO sells accident and health insurance, life insurance and fixed annuities to about 20 million clients in 55 countries. It has 12,500 employees and 60,000 agents, brokers, banks and other intermediaries in its distribution networks.

The acquisition would give New York-based MetLife a significant presence in Japan, Europe and South America, and number-one positions in the life markets in Russia and Chile, in terms of premiums written, MetLife said.

The boards of both MetLife and AIG have approved the transaction, and the companies hope to close by the end of the year. The deal should result in few layoffs, because ALICO has little overlap with MetLife’s operations, MetLife executives report.

In a conference call with analysts, MetLife CFO Bill Wheeler said AIG would own 8% of MetLife as a result of the deal. Its stake could potentially rise to 14% in 2011, if it converts the preferred shares it received from MetLife to common shares. AIG will not have a representative on MetLife’s board, a MetLife spokesperson said, and AIG must vote its shares in the same proportion as other MetLife common shareholders vote their shares.

The MetLife-ALICO deal is the second proposed sale of a key subsidiary of AIG that AIG has announced in little more than a week. AIG announced March 1 that had agreed to sell AIA Group Ltd., an international life unit, to Prudential plc, London, for about $35 billion.

If all goes as planned, AIG will generate a total of about $51 billion in deal volume, including $31.5 billion in cash and $19.2 billion in securities. AIG would pay the $31.5 billion to the Federal Reserve Bank of New York, cutting what it owes to the New York Fed to about $45 billion.

The special purpose vehicle formed by AIG and the New York Fed to hold AIG’s interests in ALICO would hold more than 78 million shares of MetLife common stock, about 6.9 million shares of MetLife preferred stock that could be converted into about 68 million shares of common stock, and 40 million equity units of MetLife with a liquidation preference of $3 billion, according to AIG and MetLife.

Stock Losses Won’t Hurt ‘Early Boomers’

Posted on March 10, 2010 by Editor Test -

The recent stock market crash and its impact on retirement accounts will not force many early Baby Boomers to delay their retirements, according to new research by the National Bureau of Economic Research.

That’s because most early Boomers aren’t heavily reliant on stocks for future income, and because recession-related unemployment may actually force many people now in their mid- to late-50s to retire early. On average, early Boomers are expected to delay their retirements by only 1.5 months.

The paper, “What the Stock Market Decline Means for the Financial Security and Retirement Choices of the Near-Retirement Population,” was written by NBER Research Associate Alan Gustman and co-authors Thomas Steinmeier and Nahid Tabatabai.

For their incomes during retirement, the early Baby Boomers will rely far more on Social Security and defined benefit plans than on the stock market.

Only about 15% of the wealth of workers aged 53 to 58, or $116,535, was in stocks (directly or in retirement plans) at the time of the cash. More than a quarter of their household wealth was concentrated in anticipated Social Security payments. Early Boomers have relatively little dependence on assets in defined contribution plans.

Households with at least one member age 53 to 58 had an average of $766,945 in total wealth in 2006, according to the Health and Retirement Study survey of 22,500 households. Social Security was their single largest asset (26% of total wealth on average), followed by pensions (23%) and home equity (22%).

The drop in housing prices is also unlikely to greatly affect their retirement plans. Only 1.7% of early Boomers had negative home equity in 2006. Most had either no mortgage or had positive equity. Nearly half of early Boomer households had no mortgage at all.

If housing prices were to fall 20%, only 6.4% of the households in this age group would be “underwater,” according to the study. Typically, it will be many years before these boomers sell their homes to capture the equity in them.

If the pattern evident after the 2001-2002 stock market crash holds true for the latest crisis, those who defer retirement to rebuild their savings will be far outnumbered by those forced to retire early because they can’t find good jobs.

Pension Funding Edged Higher in February

Posted on March 10, 2010 by Editor Test -

Rising equity prices lifted the typical U.S. corporate pension plan’s funding status by 1.6 percentage points in February, to 85.3%, according to BNY Mellon Asset Management.

Assets for the typical plan rose 1.8% and liabilities decreased 0.1 percent for the month, as reported by the BNY Mellon Pension Summary Report for February 2010.

“Plans also benefited from a slight increase in the Aa corporate bond rate, which moved from 5.92% to 5.96% and resulted in a slight decrease in liability values,” said Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management.

Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Higher yields on these bonds result in lower liabilities.

“February was a good month as interest rates held steady during the equity market rally,” said Austin. “We have experienced a nice recovery in funding levels over the last three months.”

But he warned of pension funded status volatility ahead, stemming from economic troubles in the European Union and the U.S. deficit, adding, “We continue to see significant interest in liability driven investing (LDI) from plans looking to limit their exposure to volatility.”

BNY Mellon has $22.3 trillion in assets under custody and administration, $1.1 trillion in assets under management, services $12.0 trillion in outstanding debt and processes global payments averaging $1.6 trillion per day.

Top Ten Annuity Sellers 2009

Posted on March 10, 2010 by Editor Test -

Top Ten Annuity Sellers, 2009*
Company	Sales ($bn)
MetLife	22.37
Prudential Annuities	17.35
TIAA-CREF	13.92
Jackson National Life	13.86
AIG	12.51
Lincoln Financial	12.12
New York Life	11.59
ING	10.13
RiverSource Life	9.27
Allianz Life	8.47
Total Top Ten	131.59
Industry Total	234.90
Top 10 Share	56%
*Includes fixed and variable. Source: LIMRA.

If You’re Human, You Have Capital

Posted on March 9, 2010 by Editor Test -

Paul Krugman, the Nobel laureate, Princeton economist and controversial New York Times columnist, revealed in a recent magazine profile that he and his wife liquidated their stocks ten years ago and now invest only in bonds or cash.

“It just takes a lot of work to think about it,” Krugman told an interviewer, “and at no point—except maybe early 2009, if I’d been really feeling daring, stocks really did look cheap.”

“We bought a couple of things,” [his wife, Robin] Wells said. “We bought muni bonds and some Ford Motor bonds. The thing is, if you look at it on a historical basis, even back in the two-thousands, stocks are not cheap.”

They may be selling themselves short. Someone like Krugman, a tenured professor in his mid-50s with a secure, “bond-like” income, might be wiser to balance out his personal “balance sheet” by diversifying into stocks.

Indeed, investors and their financial advisors risk missing half the picture if they limit their planning decisions to the familiar but narrow mixture of stocks, bonds and other financial assets that are in conventional investment portfolios.

Holistic approach
Instead, they should approach their finances more holistically, says Peng Chen, president of Ibbotson Associates. They should be thinking in terms of individual or household “balance sheets.”

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How is a balance sheet different from a portfolio? As Chen explained in a presentation at the Morningstar/Ibbotson conference in Orlando last week, an individual balance sheet includes one’s human capital.

Human capital, as opposed to financial capital, consists of the present value of future earnings, the present value of future savings, and even the present value of Social Security and anticipated pensions.

“It’s the largest and most illiquid asset that people have,” Chen said. “It’s based on age and occupation. And, as you go through different life stages, it influences your investment decisions.”

Only when these assets are listed on an individual balance sheet, alongside liabilities like the present value of pre- and post-retirement expenses, is it possible to answer questions like: How much should I allocate to stocks and bonds? How much life insurance do I need? Should I buy a guaranteed retirement income?

One of the principal rewards of this approach is the realization that some human capital (like Prof. Krugman’s) is more predictable than others (like a real estate agent’s or a stockbroker’s).

That leads to the somewhat counter-intuitive insight that a person who chooses a low-volatility career in academics should go farther out on the limb of the efficient frontier than a real estate agent, who might have a natural appetite for risk.

Depending on his or her occupation, a person’s answers on a risk assessment questionnaire, if based solely on emotion or temperament, might lead an advisor to assign that individual an overly risky or overly conservative asset allocation.

Putting the present value of human capital and personal expenses at the center of the financial planning process, rather than at the periphery, leads to other insights as well, Chen pointed out.

Guaranteed products
By defining expected income and expenses, both before and during retirement, it helps people determine how much life insurance they should buy during their working years and how large an annuity they might need during retirement.

Chen also demonstrated that retirement requires a new way of thinking about the traditional efficient frontier of investments. In retirement, the efficient frontier chart must incorporate considerations like how much income the retirees will need, how much risk of an income shortfall they can tolerate, and whether they want to plan for a 20-year or a 30-year retirement.

For instance, a 20% equity, 80% bond portfolio might easily produce 20 years of adequate income, but not be as reliable over 30 years. Guaranteed products, such as immediate annuities or deferred variable annuities with lifetime income benefits, might be too conservative for a 20-year retirement, but essential for a 30-year retirement.

“Longevity risk is the biggest fat tail for individual investors to manage during retirement,” Chen said. “If you’re planning for 30 years, it would be foolish not to be looking at [annuities].”

Human capital has been the subject of research papers by Chen, Moshe Milevsky of York University and others in recent years. It is also the central theme of Milevsky’s book, Are You a Stock or a Bond: Create Your Own Pension Plan for a Secure Financial Future (FT Press, 2009).

The Joy of Illiquidity

Posted on March 9, 2010 by Editor Test -

Illiquidity was a prime suspect in the recent financial crisis. So it was curious to hear someone praise the virtue of illiquidity at the annual Morningstar/Ibbotson Conference in Orlando last week.

But when Roger Ibbotson talks, people listen.

The Yale School of Management professor, who founded the research firm of Ibbotson Associates in 1977 (and sold it to Morningstar Inc. in 2006), also has a nine-year-old hedge fund, Zebra Capital. One of its raison d’êtres: to exploit the “illiquidity discount.”

“We short all the exciting stocks,” the lanky, 66-year-old Ibbotson joked as he described Zebra’s preference for stocks with healthy earnings but very low trading volume and low prices.

Illiquidity, either in stocks or in bonds, should be viewed as an investment style distinct from capitalization, value/growth, maturity or credit risk, he said in plugging the Milford, Conn.-based Zebra Capital’s services.

Overlapping with the universe of alternative investments, these low-turnover assets include private real estate, distressed debt, hedged equity, natural resources, commodities, private capital and emerging market equities, Ibbotson said.

“Liquidity seems to have an impact on realized and expected returns across all types of securities and across all locations,” Ibbotson and Yale colleague Zhiwu Chen wrote in a June 2008 paper, “Liquidity as an Investment Style.”

Advertisement “Liquidity is valuable in any security, and the market seems to be willing to pay a high price for it,” they wrote. “Correspondingly, the market accepts a lower return for liquidity. Liquidity seems to be an investment style that is different from size or value. This result seems to hold up in almost any equity market subset and in any location.”

The flipside of the illiquidity discount is the liquidity premium. That is, investors are generally willing to pay more for a stock or bond that, for one reason or another, offers the kind of liquidity reflected in high-volume trading.

For any given size or style, the more illiquid the stock, the higher its historical (1972 to 2009) compound annual return, Zebra Capital’s research shows. Even among value stocks and small-cap stocks, the illiquidity discount appears to boost performance by an extra point or two. (See Data Connection on today’s homepage.)

Over those 37 years, for instance, the least liquid of the smallest small-cap stocks outperformed the most liquid, 17.87% to 5.92%. The least liquid of the largest large-cap stocks outperformed the most liquid, 12.29% to 9.46%.

Looking at value vs. growth stocks, the least liquid of the value stocks outperformed the most liquid, 20.63% to 12.33%, and the least liquid growth stocks outperformed the most liquid, 11.36% to 3.32%.

While high liquidity small-cap stocks underperformed high liquidity large cap stocks, 5.52% to 9.46%, high liquidity value stocks outperformed high liquidity growth stocks, 12.33% to 3.32%.

(Data showing whether or not these relationships held true during time periods smaller than 37 years was not immediately available.)

Much of Ibbotson’s talk was aimed at explaining portfolio behavior in the financial crisis. Contrary to conventional wisdom, he said, diversification in stocks and bonds worked during the crash—it just didn’t work as well as people expected it to. But a mix of stocks and bonds offered significant portfolio protections, as expected. “Stocks and bonds are great diversifiers,” he said.

Diversification within asset classes doesn’t work as well as most people assume, Ibbotson said. Many investors still misinterpret the famous 1986 Gary Brinson study on variations in pension fund returns to mean that differences in asset allocation account for 90% of portfolio returns.

In reality, systematic risk (also known as market risk, aggregate risk or un-diversifiable risk) accounts for as much as 70% of a portfolio’s returns, he said. Asset allocation, as commonly understood, accounts for only about 16% of returns.

“People don’t understand that diversification doesn’t take away the 70% caused by the market,” Ibbotson said. “That’s why they’re asking, ‘Why didn’t diversification work in 2008?’”

Black Swan or Black Turkey?

Posted on March 9, 2010 by Kerry Pechter -

“Black swan,” the phrase that Nassim Taleb’ s bestseller of the same name affixed to the financial lexicon, is typically used to describe improbable catastrophes that defy any reasonable prediction.

Some people have suggested that the financial crisis of 2007-2009 was a black swan event. Others, like Laurence B. Siegel, the research director of the Research Foundation of the CFA Institute, think it was a bird of a different feather.

“We didn’t have a black swan. We had a black turkey,” said Siegel, who offered a post-mortem of the crisis—and suggestions for investment strategies going forward—at the Morningstar/Ibbotson conference in Orlando March 5.

Larry Siegel Siegel, who edited his organization’s new book, “Insights into the Global Financial Crisis,” defined a black turkey as “an event that is entirely consistent with past data but that no one thought would happen.”

An explosive mixture of leverage and volatility was the proximate cause of the crisis, Siegel said, in a presentation that tried to summarize in 45 minutes the views of the book’s 20-some contributors. As interest rate spreads shrank, investors resorted to leverage and speculation to make money. Then spreads widened.

But the deeper cause was government meddling in the markets, he believes. Government responses to earlier crises have added layer after layer of moral hazard to the system by mitigating the cost of failure. Like the controversial policy of suppressing natural forest fires, it only fueled the fire next time.

So people took absurd risks, trusting that the Invisible Hand wouldn’t slap them silly. But the pendulum inevitably swung the other way. “It was totally predictable,” said Siegel, who has an MBA from the University of Chicago and favors Chicago School, free-market solutions. “Big declines always follow huge advances.”

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Far from being rare, he said, black turkeys occur regularly in high finance. He listed “a flock of turkeys” since 1911, including six stock crises in the U.S., a 40-year bear market in long Treasury bonds after 1941, gold and oil bubbles in the 1980s and a 20-year bear equity market in Japan. (See chart).

In the latest crisis, the government’s culpability extended beyond moral hazard, he said. Invoking the views of Peter Wallison, an American Enterprise Institute fellow and a contributor to the book, Siegel traced the crisis to efforts during the Carter and Clinton administrations to encourage lending to low- and middle-income homebuyers.

But the recipe for a truly disastrous housing bubble was not complete until the George W. Bush administration, when the Department of Housing and Urban Development required Fannie Mae and Freddie Mac to step up purchases of loans made to low income borrowers.

A Flock of Turkeys
Asset Class	Time period	Decline
U.S. stocks*	1911-1920	51%
U.S. stocks (DJIA, daily)	1929-1932	89%
Long U.S. T-bonds*	1941-1981	67%
U.S. stocks	1973-1974	49%
UK stocks*	1972-1974	74%
Gold	1980-1985	62%
Oil	1980-1986	71%
Japanese stocks	1990-2009	82%
U.S. stocks (S&P)	2000-2002	49%
U.S. stocks (NASDAQ)	2000-2002	78%
U.S. stocks (S&P)	2007-2009	57%
*Real total return. Source: Laurence B. Siegel.

As the crisis unfolded in the fall of 2008, the government should have restored liquidity to the financial system but, in his view, shouldn’t have bailed out companies like AIG. The financial system, which by that time accounted for 40% of the profits of the S&P 500 companies, needed to slim down.

Unemployment in the financial sector has provided “creative destruction,” he said, and as a result we’ve “seen a return toward equilibrium in financial services.”

Going forward, Siegel advised money managers to look for inflation hedges. That means Treasury Inflation-Protected Securities and floating rate note funds for those who want maximum protection, plus cash in case high interest rates follow inflation.

For investors less willing to sacrifice return for safety, he recommended real estate, commodities, non-dollar denominated assets, real asset-related private equity, and equity investments in companies with fixed nominal costs and variable revenues.

Western National #1 in 4Q Fixed Annuity Sales

Posted on March 3, 2010 by Editor Test -

U.S. sales of fixed annuities were an estimated $19.6 billion in fourth quarter 2009, according to data from the Beacon Research Fixed Annuity Premium Study. Structured settlements are not included in that figure.

Western National Life, an AIG company, vaulted from sixth place to become fourth quarter’s sales leader, bumping New York Life to second place. Western National also led in book value sales, replacing Pacific Life. Allianz dropped down a notch to come in third.

By product type, American National took top market value-adjusted (MVA) sales honors from ING USA. Allianz remained number one in indexed annuities, and New York Life continued as the dominant issuer of fixed income (immediate and deferred) products.

Jeremy Alexander, CEO of Beacon Research, said that fourth quarter’s fixed annuity rate trends resembled those of the prior quarter.

“These rates continued to decline. Only a few one-year renewal rates were crediting at the threshold 5% level. Both book and MVA annuities again moved to shorter initial interest guarantee periods. As was the case in third quarter, most annuity buyers probably didn’t want to lock in low rates for more than a few years,” he said in a release.

“We expect first quarter sales to post a sequential increase,” Alexander continued. “Fixed annuity rates are somewhat higher and there’s been stepped-up promotional activity of all four fixed annuity product types. Though consumer demand should remain strong, further growth will depend on the interest rate environment and the availability of investment grade bonds to back new business.”

Fourth quarter 2009 sales were down 43% and 11% compared to fourth quarter 2008 and third quarter 2009, respectively. In calendar year 2009, total market sales were an estimated $104.3 billion, 2% below 2008.

By product type, estimated sales in fourth quarter 2009 and for all of 2009 were:

Type	Q4, 2009	2009
Book value	$9.0 bn	$52.0 bn
Indexed	6.9 bn	29.5 bn
MVA	1.8 bn	14.8 bn
Fixed income*	2.0 bn	8.0 bn
*Immediate and deferred.

Results were behind the near-record levels of fourth quarter 2008. MVAs (whose surrender values vary, depending on prevailing interest rates) dropped 76%, book value annuities fell 47%, income annuities fell 17%, and indexed annuities declined 4%.

Compared to the third quarter of 2009, income annuities posted a small 1% increase. Estimated sales shrank for the other product types: MVA, -39%; book value, -9%; indexed, -6%. The indexed share of sales rose to an eight-quarter high of 35%, but book value annuities remained the dominant product type with a 46% share.

Compared to 2008, indexed annuity results advanced 11%. MVAs were 16% behind. Income annuities fell 7%, and book value products dropped 3%.

Fixed annuity sales by company
Company	Sales ($000)
Western National Life (AIG)	1,961,481
New York Life	1,759,561
Allianz Life	1,580,424
American Equity Investment Life	899,918
Aviva USA	888,614
Pacific Life	855,178
ING USA Annuity and Life	679,241
AEGON/Transamerica Companies	616,323
MetLife	491,187

Sales by product
The Allianz MasterDex X, the only indexed annuity among the top five sellers, moved from second place to become fourth quarter’s best-selling product. All the others were book value products.

Pacific Life’s Pacific Explorer, last quarter’s leader, came in second. New York Life rejoined the top five with its NYL Select 5 Fixed Annuity in third place. Two Western National annuities – Flex 5 and a proprietary bank product – came in fourth and fifth, respectively. Fourth quarter results include sales of more than 400 products (excluding immediate annuities).

Company	Product	Type
1 Allianz Life	MasterDex X	Indexed
2 Pacific Life	Pacific Explorer	Book Value
3 New York Life	NYL Select 5	Book Value
4 Western National	Flex 5	Book Value
5 Western National	Prop. Bank F	Book Value

Sales by channel
Three of the top five annuities were also distribution channel leaders. Pacific Explorer became the new independent broker-dealer sales leader and continued as the top bank and wirehouse product. MasterDex X remained number one among independent producers. The New York Life Optimal Fixed Annuity (a book value product) was the new captive agent bestseller.

Channel	Company	Product	Type
Banks and S&Ls	Pacific Life	Pacific Explorer	Book Value
Captive Agents	New York Life	NYL Optimal	Book Value
Ind. B-Dealers	Pacific Life	Pacific Explorer	Book Value
Ind. Producers	Allianz Life	MasterDex X	Indexed
Lg. Regional B-Ds	New York Life	NYL Select 5	Book Value
Wirehouses	Pacific Life	Pacific Explorer	Book Value

The Future Of Online Customer Feedback Has Arrived

Posted on March 3, 2010 by Ben Pousty, Corporate Insight -

Financial services firms have always coveted feedback and opinions about their websites and online services. This information offers an invaluable blueprint for improving the user-experience for three key audiences—prospective investors, clients and financial professionals. It also sheds light on the practices of competitors.

Unfortunately, convincing visitors to provide constructive feedback online has proven to be a challenge. Firms have tried many ways to connect with online users online, with most yielding lukewarm results.

Online surveys offered by third-party vendors, such as Foresee, are the most popular. These typically pop up without notice and promise to take only a moment to complete. Universal links to dedicated feedback pages are also featured on many websites.

We have seen firms, perhaps in desperation, offer small rewards such as gift cards, donations and even petty cash in return for our time. A major financial services firm once mailed us a ten-dollar bill for completing their survey.

Last month, TIAA-CREF introduced the innovative sitelet, TC Listens, an online community that allows clients to offer feedback and suggestions for enhancing the firm’s Web offerings. The sitelet was created with Digitas, an interactive marketing agency.

TC Listens resembles TIAA-CREF’s other progressive client-focused social media endeavor, myretirement.org. When clients register for access to this sitelet, they create a unique username and furnish personal details such as email address, home address and favorite websites. They are also invited to share their thoughts on retirement and financial planning.

The TC Listens homepage features a welcome video, an interactive site tutorial and a section called Community Activities that displays current threads regarding site improvement or retirement topics. The site’s five main sections—Discussions, Activities, Resources, Sessions and People—are all accessible from the main navigation menu at the top of the homepage.

TC Listens Homepage

The five sections allow registered members of TC Listens to communicate with each other and the firm in a variety of ways. The Discussions forum’s message board allows users to respond either to topics posted by a moderator or to the comment of other members within the thread. The page also uses the popular Like or Dislike option for fast, comment-free feedback.

TC Listens Discussions Page

On the Sessions page, members can participate in live chats, provided by a moderator. The Activities section accepts specific feedback requests and contains an assortment of polls, surveys and other feedback-oriented discussion topics. A search of member profiles can be initiated from the People tab, and there’s a library of Flash videos and presentations at the Resources tab.

TC Listens People Page

Financial services firms have generally been slow to establish a social media presence. Many are still scrambling to reap the benefits of popular third-party sites like Facebook and Twitter. But with its own gated community, so to speak, TIAA-CREF can mine valuable data from a focused, high-value audience. Between its new TC Listens website and its retirement-focused online community, myretirement.org (with over 10,000 members), TIAA-CREF has established itself as a leader in social media in the retirement space.

Industry Views are special reports that are sponsored and independent from RIJ’s editorial content.

Not Much Interest in Income Products: Cogent

Posted on March 3, 2010 by Editor Test -

Although the negative impact of the current recession on retirement savings has raised awareness of the need guaranteed retirement income, few Americans have a strong interest in retirement income products, according to Cogent Research.

“The vast majority of retirees and pre-retirees report being familiar but uninterested in these products to date (with only 15% owning and another 1% indicating they plan to own retirement income products),” the company said in the Winter 2010 issue its newsletter, Cogent Thoughts.

Only 14% of those surveyed said they were very familiar with income products and only three percent said they were very interested in such products.

“Key barriers for providers to address include: the idea that they can manage their income without help, or that they are not worried about outliving their savings (the high net worth), or more the commonly discussed aversion to giving up any control of principal.”

Bond/CD laddering and variable annuities appear to have the most traction with consumers. There’s less interest in absolute return funds or target payout funds.

“Most retirees and pre-retirees cite brokerage firms, mutual fund firms and insurance companies equally as often as the ideal providers of these solutions (although insurance companies are preferred more by the more affluent),” the newsletter said.

“Building on strong existing relationships could be a winning strategy, with most citing ‘I already use and like them’ as the reason they would consider a provider for their retirement income needs.”

AIG Sells Its Asian Crown Jewel

Posted on March 3, 2010 by Editor Test -

Prudential plc, the large British insurer (not related to Prudential Financial in the U.S), has agreed to buy the American International Group’s life insurance business in Asia in a deal valued at $35.5 billion, the New York Times reported.

The sale of Hong Kong-based American International Assurance, or AIA, would lead to the partial repayment of the more than $180 billion that the U.S. government has invested in AIG as part of its financial industry bailout.

The Federal Reserve Bank of New York, which holds preferred shares in AIA, would receive the first $16 billion in proceeds from a sale.

Beyond the sale of AIA, the insurer is also trying to sell another life insurance unit, the American Life Insurance Company, to MetLife for about $15 billion, according to people briefed on the matter.

AIA had an operating profit of $1.44 billion after tax in the financial year ending Nov. 30, 2009, based on unaudited figures, according to Prudential. The combination entity of AIA and Prudential plc would be the leading life insurer in Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines and the leading foreign life insurance business in China and India.

The 162-year-old Prudential already draws a large part of its revenue from Asia, with more than 11 million policyholders in 13 markets. “We are combining the two strongest international life insurers in Asia,” Tidjane Thiam, chief executive of Prudential, said in a conference call Monday to announce the deal.

In 2008, 44% of new profit for Prudential came from Asia, Thiam said. If AIA and Prudential had combined in 2009, the figure would have been 60%.

The new company will assume the name Prudential, have headquarters and be incorporated in Britain and be traded on the London Stock Exchange with American Depository Receipts traded on the New York Stock Exchange. The AIA brand will not disappear, however.

Under the terms of the deal, Prudential would pay about $25 billion in cash and about $10.5 billion in stock, preferred shares and convertible preferred shares. The company said it would obtain the cash for the deal through a $20 billion public offering and $5 billion in senior debt.

The sales of new shares must be approved by shareholders, and the deal faces other regulatory approvals. Prudential said it anticipated that the offering would take place in May and that the transaction would close in the third quarter.

Several analysts downgraded Prudential shares on Monday. “It’s going to be enormously dilutive,” ING analyst Kevin Ryan told Reuters, speaking of the public offering. “No one knows exactly what AIA contains or how profitable it is, or how it overlaps with Pru’s existing businesses.”

Prudential first approached A.I.G. last year, but it was rebuffed because its offer was too low, according to people briefed on the matter.

AIA, founded in 1919 and one of AIG’s oldest divisions, is widely considered one of the top businesses within AIG. The division has about 20 million policyholders throughout Asia, served by 23,000 employees and 300,000 agents. It has customers in Australia, Brunei, China, Hong Kong, India, Indonesia, Macao, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

In a Down Year, Four Firms Grow Their VA Sales

Posted on March 3, 2010 by Editor Test -

Although total variable annuities (VA) premium in 2009 was down 18% from the previous year, according to LIMRA’s U.S. Individual Annuities quarterly sales survey, four major life insurers finished 2009 with a year-over-year increase in variable annuity sales.

The biggest gainers were Prudential Annuities and Jackson National Life, whose sales were up 58% (to $16.11bn) and 55% (to $10bn), respectively. MetLife increased sales by 10% (to $15.4bn) and Sun Life sales went up 60% (to $3.2bn).

VA sales totaled $127 billion for 2009, down from $156 billion in 2008.

The companies don’t have many common elements that might explain their success last year. Prudential and MetLife are both huge, but MetLife sells both fixed and variable annuities while Prudential focuses on variable. Michigan-based Jackson National, a retirement specialist, and Wellesley, Mass.-based Sun Life Financial are both foreign-owned (by Britain’s Prudential plc and Sun Life of Canada, respectively).

“VA sales experienced significant losses from the third quarter of 2008 through first quarter 2009 and while we are seeing VAs slowly recover, the recovery is slower than expected,” said Joe Montminy, assistant vice president and research director for LIMRA’s annuity research.

Montminy attributed the slowdown in 1035 exchanges for the reduction in overall VA sales. The transfer or “exchange” of assets from an existing contract to a new contract is counted as the sale of a variable annuity, and in a normal year such exchanges account for a large percentage of overall sales.

Because the newest products—those issued since the financial crisis—have less generous benefits than older products, contract owners have less incentive than usual to trade their contract for a new one.

Top 10 Variable Annuity Sellers in 2009
Company	2009 sales ($bn)	2008 sales ($bn)	% Change
Prudential	16.11	10.20	+58%
MetLife	15.40	13.95	+10
TIAA-CREF	13.92	14.43	-10
Jackson National	10.00	6.47	+55
Lincoln Financial	7.96	11.13	-28
AXA Equitable	7.48	13.38	-44
ING	6.71	13.84	-52
RiverSource	5.52	7.43	-26
John Hancock	5.29	9.56	-45
AIG	4.75	8.22	-42
*Sun Life was the only company not among the top ten VA sellers that increased VA sales in 2009. Premiums were up 60%, to $3.2bn.

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