Annuity FYI Blog

Hartford Financial‘s president and COO, Thomas Marra, is planning to retire, reports Diane Levick in the Hartford Courant. Marra was instrumental in building the firm’s business in variable annuities, but the current stock market slump has hurt insurance companies, such as Hartford, that heavily rely on those products. Hartford is now taking heavy losses from the guaranteed minimum income benefits attached to those variable annuities, which they are still liable for.

Marra will step down in July, with no replacement in sight. He filled these positions for two years, and spent a total of 29 years with the company. 

According to the Retirement Income Reporter, Vanguard is planning to launch a new variable annuity that features a guaranteed lifetime withdrawal benefit. The firm has filed an application with the Security and Exchange Commission for their approval.

The GLWB rider is expected to have a 1% fee, although exact fees and payout rates are unknown. Vanguard claims that this new annuity will be like its no-load, no surrender-fee variable annuity, except with a lifetime income benefit tacked on.

While this proposal could change significantly before it goes to market, it states that there will be a $25 annual fee if the account value drops below $25,000. As of now, the minimum initial investment will be $5,000.

The Retirement Income Reporter recently reported on annuity provider Lincoln National receiving $300 million in regulatory tax relief from the state of Indiana. The Indiana Department of Insurance is allowing the life insurance company to use a certain accounting practice with deferred tax assets that will free up capital. The division that sells fixed annuities and variable annuities, Lincoln Financial Distributors, has had to lay off over 10% of its workforce over the past few months.

Lincoln’s Chief Financial Officer stresses that no material money was injected into the annuity or life insurance reserves. Their risk-based-capital is over the 250% needed for life insurers to avoid regulatory attention.

An article in last Sunday’s Miami Herald offers advice about variable annuities from financial planner Meg Green. She believes that variable annuities, even those with a guaranteed minimum income benefit (GMIB) are not suited to most seniors already in retirement.

According to Meg, these products can have certain pitfalls for retirees:

• Many variable annuities require you to wait a certain period of time (e.g. 10 years) before the GMIB income stream kicks in.
• The annuity insurer keeps any remaining principal after the annuity period ends (by death in the case of lifetime benefits.)
• The annuity income will be taxed.
• A GMIB can add up to 3/4 of 1% in fees to the cost of the annuity.

However, she says that tax deferred annuities can be suitable for extra retirement savings, if that time is far away. Always make sure that you understand the annuity products you are buying.

Amid market turmoil, several insurers that sell annuities and life insurance are making changes to their executive boards:

• The Associated Press recently reported that New York Life Insurance has named Ted Mathas as its new chairman, effective June 1. He is currently the insurer’s Chief Executive Officer and President. Mathas is replacing the retiring Sy Sternberg.
• As reported yesterday by Rachelle Younglai from Reuters, Nationwide Mutual named Steve Rasmussen as CEO after suddenly deciding to fire Jerry Jurgensen from the position. Rasmussen is also Nationwide’s President and Chief Operating Officer.