Annuity FYI Blog

While demand for variable annuities is still very high, many insurers are stepping back from them quite a bit.  According to Investment News’s Darla Mercado in the article “VA carriers hunkering down,” life insurers have had a hard time hedging their variable annuities with living benefits.  Stock market volatility and low interest rates are making it expensive for insurers to offer variable annuities.  Genworth Financial stopped selling annuities at the beginning of 2011 and Sun Life Financial stopped their sales earlier this month.  Some of the biggest companies; like Jackson National, MetLife, and Prudential Financial; have stopped offering some of their living benefits and started using less risky investment options.

John Hancock Life plans to stop selling a lot of their annuity products as well as limiting their distribution channels.  As more companies do the same, there will be less competition in the industry and prices could rise.  Most advisors still send their clients to the top three sellers, MetLife, Jackson and Prudential.  There may be more room for the smaller companies in the future.  If living benefits drop below 5%, many advisors will be playing up the tax deferred growth benefit of variable annuities.  With fewer living benefits offered, advisors will go back to the root benefits of variable annuities, death benefits and tax deferred growth.  One advisor believes that 2013 will see a big focus on those benefits over the living benefits of variable annuities.

Written by Rachel Summit

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According to a recent survey, investors are quite uncertain with the retirement issues surrounding them and could use more help from advisors.  Danielle Andrus of Advisor One says that many people are not happy with the support offered from their employer’s retirement plan in her article “Unsatisfied and Uncertain–Investors Need Advisors’ Help: Retirement Report Roundup.”  Cogent Research’s study of investors found that more than half were unhappy with their current situation and need advisors’ help transferring 401k annuities and other retirement savings plans.  Those who are happy with their current employer plans are three times more likely to roll their money over with the same company holding their 401k or 403b plans.  Investors were most satisfied with Fidelity, Wells Fargo, Vanguard, Merrill Lynch, and Charles Schwab.

LIMRA research has found that half of pre-retirees have not even considered the possibility of outliving their income.  Fewer than one third of those set to retire in the next three years actually have a written retirement plan in place.  Advisors will be able to help pre-retirees and retirees make decisions to carry their savings throughout their lifetime.  Annuities with guaranteed living benefits have been increasing steadily and were up 8% in 2010.  With $81 billion in sales of annuities with guaranteed living benefits in 2010, the total assets of variable annuities carrying that rider went to $521 billion during the fourth quarter of last year.  New annuities with these riders were introduced in 2010 by Hartford, Principle, and Protective.  Our experts can help you with 401k annuities and guaranteed living benefit riders that will make your money last over your lifetime.

Sales of immediate annuities and fixed indexed annuities increased in 2010, according to National Underwriter’s Allison Bell.  The article “Annuity Data: Fixed Annuities; Variable Annuity Guaranteed Living Benefits” summarizes the information collected by Beacon Research Publications Inc.  Fixed annuity sales decreased 31% from 2009 to 2010, but were still $72 billion.  It doesn’t necessarily mean that people are buying fewer annuities though.

Many investors decided to purchase fixed indexed annuities or variable annuities instead of fixed annuities because of low annuity rates.  Indexed annuity sales were up 6% in 2010, for a total of $31 billion.  Investors like the lower risk indexed annuity because they get some guarantees along with exposure to the market at little to no risk.  There were $8 billion of income annuities sold in 2010, a 2% increase from 2009.

LIMRA conducted a survey in the insurance industry and found out that investors purchasing variable annuities are more likely than ever to add guaranteed living benefit riders to their annuities.  In the fourth quarter of 2010, 87% of investors added a GLB to their variable annuities.  This was an increase from 2009 when 84% of investors added the riders.  Total variable annuity assets that include GLBs went up to $521 billion in the fourth quarter of 2010, nearly doubling the total from just two years prior.

According to “Taking off the glitz,” Darla Mercado of Investment News says that variable annuities are losing some of the benefits that made them so popular in the first place.  Many living benefit features were added and made more attractive last year in order to draw investors into variable annuities.  But since low interest rates make it more expensive for insurance companies to offer benefits like lifetime withdrawal benefit guarantees, some of the top sellers of variable annuities are offering less to investors.

Prudential and MetLife are two of the largest variable annuity providers and two companies that are pulling back on their benefits.  While Prudential used to base lifetime income on 6% compounded growth, they have lowered that to 5%.  They have also increased the amount of time investors must defer their annuity from 10 years to 12 years in order to receive their promised protected value.  MetLife has decreased the income annuity associated with the guaranteed minimum income benefit because of low annuity rates.

Advisors are not happy that the benefits they have been pleased to offer investors are being reduced and are looking to new companies for different variable annuities.  Ohio National Financial Services Inc. introduced a new 8% simple interest growth lifetime withdrawal benefit, available on your entire original payment.  Thomas B. Hamlin of Somerset Wealth Strategies is pleased with the annual reset and 8% growth offered by Ohio National.  Transamerica Corp.’s Retirement Income Choice 1.2 rider and their withdrawal benefit are other good annuity choices right now.

The article lists other good benefit options from Protective Life Insurance Co. and Jackson National Life Insurance Co.  It is suggested that Jackson may move up to be the top seller of variable annuities now.  MetLife and Prudential still have a lot to offer in the variable annuity market as well, even with trimmed down benefits.  The moral is that variable annuities are not “one size fits all” and really must be customized to the individual investor and their needs.

In “Comparing & Contrasting Variable Annuity Riders,” Russell Bailyn of I Stock Anyalyst highlights the riders associated with current variable annuities being offered.  Some of the top companies offering variable annuities last year were MetLife, Prudential, and Jackson National so the author discusses some of their products as well.  Basically a variable annuity allows you to grow savings for the future while deferring taxes until you actually use the money.  The premium you have paid an insurance company is divided among different investments, so the value of your contract will fluctuate with those investments.  Once you withdraw the money, it is taxed as ordinary income.  Variable annuities are registered with the SEC because they are considered securities.

Variable annuities usually guarantee you a return of premium, so that while you could get (and hope to) more than you put in, you at least won’t receive less in the future.  Most variable annuities also offer death benefits, so that if you die before receiving your premium back the money will go to a beneficiary.  The guaranteed lifetime income riders guarantee a different amount based on the age that investors start receiving their payments.  The author points out that most companies and variable annuities offer about the same income amount based on the riders you choose and that their marketing efforts are what differentiates them.

Prudential offers the HD Lifetime 6 Plus, which takes 6% of the highest daily value of the variable annuity to guarantee income.  They offer a daily lock whereas some other companies offer monthly or quarterly locks in value.  The Guaranteed Minimum Income Benefit Plus from MetLife compounds 5% of the income base until you are 80.  It is different than some other variable annuities because there is a point where you have to annuitize and receive an income stream.  Jackson National offers the Perspective II giving 6% interest for 10 years in each year that you leave the money in your annuity.  They have a lot of other investment options that are less restrictive than some other insurance companies as well.  Those are just a few of the many variable annuities in the market to choose from.  While the basics of the product are fairly standard, the difference lies in what type of living benefit rider goes along with the variable annuity.