Press Releases

UK – June 3, 2009 – Sales of variable annuities had their strongest ever quarter in the first three months of 2009, according to Watson Wyatt research.

First quarter variable annuity premiums in the UK were £370 million, a 7.7 per cent increase on the final quarter of 2008. Last year, variable annuity sales tipped over the £1 billion mark for the first time, up from £539 million in 2007 to £1,153 million.

“Sales of variable annuities grew dramatically in 2008 as financial advisers and consumers became more familiar with the products on offer,” said Andy Sanders, a senior consultant at Watson Wyatt. “The record first quarter 2009 sales data does however pre-date recent developments in the market which have included re-pricing exercises in March and April to respond to the increased cost of providing the product guarantees, the closure to new business of The Hartford in early May, and just this week, the announcement by Aegon that it planned to replace its 'Five for Life' product with the 'Secure Lifetime Income Plan' at the end of June."

Variable annuities, sometimes known as third-way annuities, are still a relatively new type of financial product in the UK. They are unit-linked investment products with explicit guarantees, and are available from a small number of providers, either as a pension or as a life assurance (investment) bond.

The products vary in the way they are put together and to whom they appeal. When available in a pension wrapper they are usually designed to provide regular income payments that are guaranteed not to fall but may also rise if investments perform well. All sales are currently made through independent financial advisers.

“A key strength and differentiator of variable annuities – their underlying investment guarantees – has become much more apparent over the last 12 months or so,” said Andy Sanders. “There may be some uncertainty in the short-term, however fundamentally the success of variable annuities will depend on whether enough people are happy to pay for the guarantees on offer.”

“Given the projected growth of the at-retirement market over the next five to 10 years, it will be interesting to see whether the market for variable annuities can maintain – or exceed – its recent momentum. And will it be the existing players that fill the gap left by The Hartford? Will a new entrant or entrants see this as an opportunity to get into the market?”

For more information please contact:

Bruce Wraight
Head of Public Relations, Europe
Watson Wyatt
+44 (0) 1737 273370
+44 (0) 7771 765154
bruce.wraight@watsonwyatt.com

Visit Watson Wyatt's online press office: www.watsonwyatt.com/europe/news/journalists.

Watson Wyatt Worldwide
Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm’s global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 33 countries and is located on the web at www.watsonwyatt.com.

Watson Wyatt's Insurance & Financial Services Consulting Practice
Watson Wyatt's Insurance and Financial Services practice is a leading provider of actuarial and business consultancy to financial services organisations worldwide. With over 400 consultants in 17 countries, the firm combines local market knowledge and global best practice to advise on all aspects of financial management including risk and capital modelling, regulatory matters, pricing, reserving, mergers & acquisitions and strategy. It provides these services to a wide range of organisations including life, non-life and health insurance companies, reinsurers, regulators and investment banks. In addition to these services it is one of the market leading actuarial and financial modelling software providers with systems including VIPitech and Pretium.