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According to the recent U.S. individual annuity sales figures published by Limra, MetLife (NYSE:MET) became the largest seller of variable annuities in the first half of the year, replacing Prudential Financial (NYSE:PRU) with sales of nearly $12.6 billion. [1]

Industry sales of variable annuities increased by 19% in the six months ended June 30, 2011, compared with the previous year and the top five sellers of variable annuities in the U.S. accounted for 56% of the industry’s total sales in the first half of 2011, compared to 42% in the same period in 2008, which hints at industry consolidation. MetLife is the largest life insurer in the U.S. and competes with AIG (NYSE:AIG), The Hartford (NYSE:HIG), New York Life and Jackson National Life in the individual annuity business.

We have a price estimate of $47.70 on MetLife’s stock which is about 40% above the current market price.

(Chart created using Trefis' app)

Baby Boomers Driving Growth in Annuities

Most of the annuities are purchased by people aged 60-65 years and the growing number of people reaching that age is fueling the growth in annuity sales. We expect retiring baby boomers in coming years to significantly boost the demand for retirement products, which will result in significant growth in separate account assets of Metlife.

According to Dominic Grinstead, managing director of MetLife UK, fixed annuity sales are expected to more than double by 2013. He said the “increasing concern about healthy life expectancy, the need for retirement income flexibility, and growing interest in alternative solutions to conventional annuities would boost the sector.” [2]

In addition to variable annuity, fixed annuity sales are also growing steadily as consumers look for guaranteed returns amid stock-market declines and increasing concerns that the U.S could soon enter another recession. With the financial crisis fresh in people’s minds, the appetite for risk has abated in times of uncertainty. Moreover, as the Federal Reserve has short term interest rates buttoned down for the foreseeable future, money market funds, CDs and many bond funds are averaging meager low-single digit returns. Annuities are providing these investors with another alternative for a few extra percentage points of return.

Notes:

  1. MetLife Tops Prudential in Annuities as Insurers Added Sales Before Rout, Bloomberg, Aug 19, 2011
  2. MetLife predicts boom for fixed annuities, FT Adviser

Disclosure: No positions

Source: Amid Recession Fears, MetLife Becomes Top Annuity Seller In U.S.