Activity in the UK’s relatively new variable annuity (VA) market
may have been down in the first half of 2009 but as product with
significant growth potential the VA is certainly not out of the
running, believes consultancy Watson Wyatt. VA sales of £343.7
million ($560 million) in the second quarter of 2009 were down 7
percent compared with the same quarter in 2008, but equaled sales
in the final quarter of that year.
“Despite the fall in sales relative to the first three months of
this year, this is quite a resilient performance from the sector,”
commented Andy Sanders, a senior at Watson Wyatt consultant.
He added that there were a number of developments during the second
quarter of 2009 including repricing exercises and product redesigns
to allow for the increased costs of guarantees as well as the
withdrawal of one of the leading product providers, US insurer The
“It is apparent, however, there is demand for such products from a
segment of consumers both approaching and at retirement,” stressed
Sanders. “Consumers are seeking alternatives to annuities and
income drawdown, and given the growth anticipated in the
at-retirement market, the prospects for variable annuity and other
similar third-way product propositions look positive,” he
However, he noted that the eventual size of the VA market will
depend on product design and costs matching consumer needs as well
as convincing a wider cross-section of the population and adviser
community of the attractions of available products.
“It will be interesting to see whether these challenges are left to
the existing providers or whether there are others that feel the
variable annuity market has sufficient long-term potential for them
to pursue market entry,” said Sanders.
According to Watson Wyatt, VAs in the UK are still only available
from a small number of providers, either as a pension or as a life
assurance investment bond, with sales predominately made through
independent financial advisers.
Based on first quarter total UK new life business, VA’s represented
a minimal 2.5 percent of total sales.