For years, Lincoln Financial has effectively been raising prices on its variable annuities, yet consumers keep buying. The companys VA business exceeds desired levels now, so further price increases have been announced: cutbacks in benefits offered to consumers. The expected result is a boost in second-quarter business but a slowdown in the second half of 2013.
We've increased pricing pretty significantly, either through reducing the benefit levels or from actually increasing the charge on our riders, Dennis Glass, CEO and president of Lincoln Financial Group, said in response to a question at a recent first quarter earnings call. We continue to see good demand from consumers. Glass added that price changes throughout the industry have not yet reached the point where consumers are discouraged from buying VAs.
Indeed, Glass reported that annuity sales of $3.2 billion in the first quarter of 2013 drove positive net flows of $885 million, up from $293 million in net flows a year earlier, which he termed a very positive result. Nevertheless, as Glass put it, We've seen our volumes get a little bit higher than we'd like them to be. He indicated that Lincolns focus is not on taking market share with low-priced offerings, but on selling solutions that are valuable to customers while helping the company achieve good returns and manageable risks.
To meet those goals, Lincoln is reducing the income benefits on the bulk of its joint survivorship living benefit riders. In May, Glass said, we're going to reduce by 50 to 100 basis points the payouts on the benefit on our joint survivorship business, which represented about 50% of the business that we had in the first quarter of 2013. He termed that a pretty substantial benefit change, which is expected to temper sales from what they otherwise might be in the second half of this year.
The second quarter, though, could be more upbeat.
We don't like to take product off the shelf, Glass said on the call, so revisions are made with pricing changes, which can take three to five months to receive the necessary approvals. Thus, advisors probably will have some time to offer Lincoln VAs with the existing payouts on joint survivorship contracts.
At Lincoln, Glass said, all decisions about product changes or price increases are made in collaboration with the firms distribution organization. In terms of the financial advisors working with Lincoln, his firm has to make sure that any changes in product design or pricing meet their needs. We don't do anything, Glass asserted, that we don't think is a good balance between what the distribution organizations need and what we need to get decent returns for our shareholders.