Date posted: May 13, 2013
In her latest article for Investment News, Darla Mercado tells why “Structured products (are) gain(ing) favor.” Using structured products helps insurance companies continue selling annuities while protecting themselves from too much market risk exposure. Allianz Life Insurance Co. has plans to release a sort of hybrid annuity and structured product after the summer. This will be the newest in a line of products already being offered by insurers. Earlier this month, MetLife’s Shield Level Selector was introduced. This single-premium deferred annuity is a combination indexed annuity and structured product. One of the other products out there is from Axa Equitable Life Insurance Co. Since 2010, they have been offering their Structured Capital Strategies variable annuity.
While these new hybrid products do offer downside protection, there are some limits to their upside and a different value proposition. The products from Axa and MetLife don’t offer living benefits with their annuities. MetLife does offer death benefits with their product though. You can choose a return of premium or a return of account value option for your beneficiaries. Insurance companies have been struggling with offering lifetime income payments as their accounts have taken a hit over the past decade. Products that are structured give them more control over growth without the guarantees that have caused some companies to exit the variable annuity business altogether.
But Allianz Life’s chief executive points out that hybrid products are more complex. Some gatekeepers aren’t keen on the products because they take away some of the benefits that investors really want, but this is another one of those ways that we must all adapt to a new normal. We’ve all seen what can happen when insurance companies get in over their heads. The success is tangible with Axa selling $2.2 billion of its hybrid structured annuity since they introduced the product. The MetLife and Axa products are subject to suitability reviews on structured products. Wells Fargo is not jumping on this new product bandwagon just yet because it lacks the guarantees associated with annuity products.
While traditional variable annuities are tied to mutual funds so that their value can go up or down, these structured variable annuities focus on steady growth from rapid accumulation moving with the markets. You invest indirectly in a particular market over shorter time frames. Any gains are capped and cap rates are adjusted frequently. Insurers also protect you from a certain percentage of downside risk. The fees for these annuities are collected based on the performance cap rate, so they are not static. More training is needed and is already occurring with sales reps and broker-dealers because of the differences in these new products.
MetLife points out that these structured annuities are not here to replace other variable annuity products. These are important new products for people not looking for the living benefits. They provide growth and also offer investors the option to get their money back if needed.
Written by Rachel Summit
Follow Rachel, aka Finance Mama, on Twitter and Google+
Date posted: March 14, 2013
The annuity market is in a tough spot with variable annuities right now. They are still good products and offer many investors benefits they can’t get anywhere else, but low interest rates have made it hard for insurance companies to keep up the guarantees. The living benefits have put a strain on insurance companies, so we should all be prepared for upcoming changes. While they will make an already complex product even more complex in some cases, changes will help the variable annuity industry survive and even thrive. Darla Mercado of Investment News offers up “8 notable trends in the VA business” to look for this year.
You will see more advisory share classes than ever before. These products will be low cost so that advisors can add on their fee. Nationwide is one of the latest to introduce an advisory share product with their Destination Income variable annuity. We’ve already seen an increase from 34 product offerings to 63 since just last year. Another continuing trend in the variable annuity market will be cash offerings for selling old products. AXA, Transamerica, and The Hartford are just three of the insurance companies offering clients an increased account value if they sell their variable annuity with living benefits back to the insurer.
To help manage living benefit riders, more insurance companies are adding volatility management funds to their variable annuities. Ohio National Life and Nationwide are two of the most recent companies to offer these funds for their variable annuities. We’ve written many posts about Sun Life selling its variable annuity business to private equity firm Delaware Life, a subsidiary of Guggenheim Partners. This selling off of older variable annuity business to private equity firms is very likely to continue. It shows a bright future for the industry that there are firms willing to buy the variable annuity business, most recently Berkshire Hathaway Life purchasing Cigna’s business.
Jackson National is now offering variable annuities that are more investment focused and do not offer lifetime income benefits. There will probably be a lot more of these products introduced in the VA market that eliminate these living benefits to help insurers avoid large increases in their long-term liabilities. I’m certain that investors won’t like this next trend, but you probably aren’t surprised that fees are likely to increase on variable annuities. Although AIG’s VALIC did drop some fees on their products, most insurers will probably be increasing variable annuity fees this year.
There is a good chance that some other companies will follow MetLife’s decrease to a 4% guaranteed minimum income benefit. A yearly 4% increase in the benefit base and 4% withdrawals are not really a bad deal in today’s economic environment, despite the fact that they are less than previous offerings. Finally, there is quite an increase in the number of hybrid investments in the market. By combining structured products and variable annuities, clients’ money is protected if markets take a dive while they still have access to increases in the market. AXA, MetLife, and Allianz Life are all offering these hybrid annuities already.
Although we are approaching the 2nd quarter of the year, we are still monitoring early trends and making educated guesses about what will happen the rest of this year. Stayed tuned to Annuity FYI to see where this all takes us in 2013.
Written by Rachel Summit
Follow Rachel, aka Finance Mama, on Twitter and Google+
Date posted: December 31, 2012
This blog is, in essence, a continuation of yesterday’s blog on what to expect in variable annuity trends for 2013. But this entry deals with the annuity industry as a whole and what we think will be happening next year. Producer’s Web published a Life Health Pro article, “Annuities: 5 things to expect in 2013,” where Maria Wood gives us some hints at changes to come. Some of the changes I talked about that are likely in store for variable annuities will effect all annuities, while others are more specific.
The number one thing that customers want from annuities is guarantees. This is slightly ironic because guarantees are what has hurt the variable annuity industry. But that is why the popularity of fixed indexed annuities is skyrocketing. Companies selling variable annuities have found it difficult to manage their risk with low interest rates, so single premium immediate annuities and deferred income annuities are becoming the products of choice to offer these guaranteed living benefits that customers are looking for.
Hartford, AXA Equitable, and Transamerica have offered variable annuity buyouts to their customers. There is a good chance that this offer of buying customers out of their guarantees will continue into 2013. Carriers are looking for a way to protect themselves from the large amount of variable annuity guarantees they have sold that could affect their future solvency. Asking customers to sell death benefit guarantees or living benefit riders in exchange for an increase in the amount of their account may be good for the insurer, but may not really be the best bet for the customer. Look closely before making one of these variable annuity deals.
How might the fiscal cliff change the nature of annuities? The fiscal cliff is all about taxes and the tax-deferral benefits of annuities could possibly be changed. While some people think this is unlikely, on the off chance that annuities lose some of their tax-deferral bonus, it would really change the industry. Since the government has been working hard to convince people of the importance of retirement saving, I would be shocked if they made it less appealing to buy an annuity guaranteeing lifetime income. We’ll certainly watch this aspect of the fiscal cliff talks closely.
Another thing up in limbo that would really change the annuity industry for advisors is this possible universal fiduciary standard. Organizations like NAFA and NAIFA say that this would border on a catastrophe for the annuity industry. Advisors would have to follow two different sets of regulations and it would be very difficult to license insurance agents with a new fiduciary standard. The annuity industry argues that their suitability requirements for annuity sales are more than enough to keep advisors honest and legal when selling their products.
Private equity asset managers are entering the annuity business, most recently with Guggenheim Partners’ purchase of Sun Life Financial’s variable annuities business. They are rumored to have interest in Aviva USA’s annuity products as well. It definitely remains to be seen what impact these private equity firms will have on the annuity industry and whether it is best for the future. But they certainly have the money to spend and are not leaving the industry anytime soon, so it looks like everyone will have to adapt. These changes for 2013 are partially up in the air based on government decisions, so we’ll keep watch and keep you readers current as things change.
Written by Rachel Summit
Follow Rachel, aka Finance Mama, on Twitter http://twitter.com/#!/financemama
Date posted: August 18, 2012
The second quarter numbers are in and Sheryl J. Moore has compiled a list of the best in the indexed industry. According to Insurance Networking News’ Carrie Burns, the “Top 10 Q2 Indexed Annuity and Life Insurance Carriers” have been released in a new report. Annuity Specs’ 60th “Indexed Sales & Market Report” accounts for the production of 99% of all of these indexed products. Moore, the author of the report, is the CEO and President of Moore Market Intelligence. Indexed annuity sales increased 8% from the first quarter of this year to the second quarter, for a total of $8.7 billion. Indexed life insurance sales went up 19% to $303 million.
Allianz Life Insurance Company took the top spot in fixed equity indexed annuity sales for the second quarter. Aviva, American Equity, Security Benefit Life, and GAFRI rounded out the top five. Some companies were a bit of a surprise in this top 10 list, while others were expected and typically have the highest indexed annuity sales. The remaining companies in the top 10 were Fidelity & Guaranty Life, Midland National Life, Jackson National Life, Lincoln National Life, and North American Company for Life & Health.
Some of the same companies made the list of the top 10 indexed life insurance sellers in the second quarter. At the top of that list was Aviva, followed by AXA Equitable and Pacific Life Companies. The next highest sellers of indexed life insurance were AEGON Companies, National Life Group, National Western Life, and Allianz Life. Finishing out the top 10 list were Penn Mutual, Minnesota Life and American General Life Companies. Based on the growth that we have consistently seen in the indexed annuity and indexed life markets, it is likely that the products will remain strong this year and into the future.
Date posted: August 3, 2012
Three life insurance companies are changing their variable annuities in the wake of some tumult in the industry. MetLife, Prudential, and the Hartford are either updating products or scaling down on variable annuity business, according to Darla Mercado of Investment News. In her article, “VA changes at major insurers are afoot, executives say,” Mercado summarized the changes we can soon expect.
MetLife’s net income increased by $1.07 billion from last year, to $2.26 billion. Sales of their variable annuities were down to $4.6 billion, which is a 34% decrease from last year. Variable annuities from MetLife will be changed in a few different ways. First of all, the withdrawal rate will go from 5% down to 4.5% when withdrawals are made before the annuity’s fifth anniversary. Other features will be changed as well, including their dollar-for-dollar withdrawal feature.
Prudential’s net income increased from $779 million to $2.20 billion, quite a significant increase. Their gross annuity sales went from $4.5 billion last year to $5.3 billion. They expected those kinds of numbers, but ideally would have liked numbers a little smaller. The Highest Daily Lifetime Income Benefit 2.0 is being introduced at Prudential very soon. We have written about Prudential’s Highest Daily Lifetime Income Benefit before; this one will have some changes. The minimum issue age will go from 45 to 50. There will be a fee increase from the current 95 basis points for single and spousal life benefits. Single-life fees will now be 100 basis points and spousal will now be 110 basis points.
On the other hand, Hartford is working to decrease the liabilities and risk of their annuity business. A cost of $127 million for a deferred acquisition cost unlock led to a $101 million loss in the second quarter. That same cost was only $17 million last year, when Hartford saw a profit of $33 million. They have a lot of ideas in mind for reducing their annuity liabilities, with the goal of reducing their book as fast as possible. One option might be offering clients lump sums to exchange variable annuities with living benefits. AXA Equitable and Transamerica have both seen some success offering clients a bump in their account value for dropping death benefits or living benefit guarantees.
Many life insurance companies sold too many variable annuities too fast and weak markets are forcing them to make some changes to keep up with their promises. Some insurers have chosen to leave the variable annuity business altogether, while most realize that the product is still beneficial to everyone involved. Benefits may not be as good as they were, but variable annuities are still good products.
Written by Rachel Summit
Follow Finance Mama on Twitter http://twitter.com/#!/financemama