Annuity FYI Blog

Although brokers are not selling the new, slim variable annuities like insurers had hoped, more insurance companies are still entering the market with their versions.  Darla Mercado of Investment News further explains in “Slimmer variable annuities attract thin following.”  John Hancock’s AnnuityNote was one of the first slimmed-down products introduced.  Pacific Life Insurance Company and ING are recent additions to the market of variable annuities with fewer investment choices and more basic benefits.  The hope was that brokers and advisers would sell these products because it would lead to an increased number of sales, even though they receive a lower commission rate.  But advisers haven’t shown much interest in the new variable annuities because of the lower commissions, lower prices, and fewer choices for investments.

Thomas B. Hamlin is the branch manager for Somerset Wealth Strategies, whose branch sold $150 million of variable annuities last year.  He believes that advisers are wary of the new products because they worry that the limited options could hurt performance potential.  Although advisers had  been asking for such products in recent years, they aren’t selling the annuities now that they are here.  “Sales are commission-driven,” according to Scott Demonte of Financial Research Corp.  Interestingly, the advisers that sell traditional variable annuities may not be the target market for these revamped products.  Many insurers want to interest advisers who typically would not sell annuities with these simplified variable annuities.  We shall have to see where the road leads for these slimmed-down variable annuities.

According to “Immediate annuities, whole life are likely to gain favor,” Darla Mercado of Investment News says that as baby boomers age they are looking for insurance products that offer them income.  As these baby boomers approach retirement, they want reliable streams of income that won’t fluctuate with the markets.  Immediate annuities offer the benefit of a guaranteed cash flow to cover necessary expenses.  Since the amount of the income stream is known, they can count on this money to pay their bills and feed them.

Whole life insurance policies are also gaining steam because financial advisers are trying to find a fixed-income alternative that will still perform well for their clients in this environment of low interest rates.  The “10-pay” whole-life policies are popular for clients under the age of 45.  Many companies offer this product which requires clients to pay all of their premiums within 10 years.  It can reduce out-of-pocket costs for term life insurance and allows clients to pay for a much shorter period of time.

The current insurance trend is to use the annuity in the supporting but still crucial capacity of guaranteeing income in the future.  Variable annuities have overtaken the fixed annuity in popularity, but they seem to swap places every year or so depending on the markets.  Demand is out there for new developments in the variable annuity industry and they are slowly creeping in.  Some of the benefits of fixed annuities are being added to variable annuities, as are aspects of the deferred immediate annuity.  One thing is for sure in the insurance industry; products and popularity are ever-changing.

In the Chicago Sun-TImes, David Roeder describes why there is “Little payoff seeking the next Google.”  He summarizes some of the latest financial news and goings-on.  Financial guys on TV always seem to be looking for the next company that will start from nothing and skyrocket to success, like Google or Apple.  But looking into the past 10 or so years, the companies with the highest expected growth potential actually had the worst annualized returns.  It seems that the lowest expectations in the stock market actually provide for the best investments.  There are some large companies whose stocks are being recommended by Chicago Investment banks like William Blair & Co.  Others are looking to invest in products that teenagers love: food & entertainment included.

Companies like MetLife, Hartford Financial, and AIG look to benefit from the Obama administration’s new recommendations.  They are looking to introduce rules that will push retirees to 401k annuities rollovers.  Currently only 2% of people with 401k’s convert them to an annuity in retirement.  Since annuities help to counteract the risk of outliving one’s savings, the government believes that this guaranteed income will help Americans through retirement.  Finance information is all over the news and has even seeped into the entertainment world.  A new documentary entitled “Floored” about the Chicago trading floors is playing in Chicago.  With the renewed public interest in financial freedom, information about stocks, annuities, and retirement is at the forefront of America’s publications.

In “AXA Equitable Launches Variable Annuity With Dual-Account Investment Platform,” a staff reporter at Insurance Business Review describes AXA’s new product.  AXA Equitable Life Insurance Company says that their new variable annuity gives a greater selection of investment portfolios and protection from the downside.  Variable annuities across the market are changing after losing steam in the recent financial crisis.  Retirement Cornerstone is their new dual-account investment platform.  It is a tax-deferred platform supporting two accounts that are interactive.  The first focuses on maximizing the performance of your investments by using money managers.  The second account is optional and simply focuses on retirement protection.

The account focused on long-term accumulation gives the choice of over 90 different investment portfolios with different investment styles and asset classes.  The account with downside-protection has a guaranteed income benefit option which invests in index portfolios and asset allocation.  The Retirement Cornerstone has what AXA believes to be one of the best annuity rates available for similar products.  Their roll-up rate is one point higher than the 10-year treasury rate average and is updated annually.  The dual-account platform has many tax benefits including tax-free transfers among portfolios which helps investors build lifetime income and respond to changes in economic conditions.  AXA believes that their new annuity product is a unique response to the past market turmoil which allows investors to build up their cash and protect it in the future.

According to Investment News, ING is replacing their variable annuity product with a more simplified version.  In “ING to sell stripped-down VA with stripped-down commission,” Darla Mercado gives details about the new product.  As of March ING will no longer market its traditional variable annuities.  Their new variable annuities will pay out a level commission that is 75 basis points.  Typical variable annuities have a trail commission of around 1% so ING’s new product will be less than that.

Advisers may first look at these lowered commissions and see less money in their pocket.  But most likely these lower commissions will draw in more customers and be able to generate more sales.  Variable annuity fees for the traditional product have recently hit highs of 3-4% in the market.  ING believes there is a strong possibility that traditional annuities will soon be pushed out of the markets.  They think that the market is going in the direction of these new “stripped-down” annuities with lower fees and commissions.  While ING’s variable annuity has a 5-year surrender period, income receipt can begin immediately.  They also have a feature where the annuity payment increases as the owner’s age increases.