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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Snoopy the beagle, MetLife’s corporate mascot, is famously appealing. But his appeal isn’t big enough to explain what happened in the second quarter of 2011, when investors put almost $7 billion worth of their retirement savings in MetLife’s variable annuities.

No, MetLife jumped ahead of Prudential as the top overall seller of variable annuities in the U.S. because its guaranteed minimum income benefit, or GMIB, seemed to be a better deal than Prudential’s guaranteed lifetime withdrawal benefit, or GLWB.

(The top selling annuity product is still Jackson National Life’s Perspective II contract, but we’ll save that topic for another post.)

Starting last May, MetLife began offering this proposition: Put your savings into certain funds in our tax-deferred variable annuity and, every year, until you reach age 91, your “benefit base” will increase (or “roll up”) by 6%. You can either withdraw that 6% (or any portion of it) or let the value of your investment grow.

(A GMIB benefit base, for those new to variable annuity riders, is the minimum amount that the investor can, if he or she wishes, convert to an irrevocable guaranteed stream of income payments for life. As long as the owner doesn’t withdraw too much in any year, the benefit base won’t be lower than original investment.)

For example, if you put $100,000 into a MetLife variable annuity with the new GMIB on a given day, during the next 365 days (and every contract year until age 91), you could let the benefit base rise to at least $106,000 or take a withdrawal of $6,000 and leave the benefit base unchanged. If you let the benefit rise every year for 10 years, the benefit base would be at least $179,000, which you could apply to the purchase of guaranteed income stream.

That proposition represented a 20% enhancement of MetLife’s existing GMIB rider (which the company still sells), which offered a 5% annual roll-up/5% annual withdrawal. More importantly, it was better than the deal offered by Prudential, which downgraded its Highest Daily GLWB last December. Instead of offering a 6% annual roll-up in its benefit base, Prudential began offering only 5%. In short order, MetLife leapfrogged Prudential in variable annuity sales.

There was a slight catch involved in MetLife’s new GMIB offer. To get the new 6% roll-up/withdrawal instead of the old 5% roll-up/withdrawal, investors in MetLife’s variable annuity had to agree to put all or most of their money into a group of funds whose managers use esoteric methods to smooth out the funds’ returns and prevent them from reaching extreme lows—or, possibly, extreme highs. But that catch apparently wasn’t significant enough to prevent investors from flocking to the new MetLife offering.

Written by Kerry Pechter

According to Investment News’ Darla Mercado, financial advisors are more loyal to Jackson National Life Insurance Co.’s variable annuity products than to any other company.  In the article, “Advisers most loyal to this VA provider,” we learn that Jackson National had the best variable annuity reviews followed by Prudential Financial Inc.  Jackson moved up from second place last year to throw Prudential out of the top spot this year.

Cogent Research performed the study of over 1,500 financial advisors.  They were asked what percentage of their business was dedicated to variable annuities and they rated their happiness with certain variable annuity factors.

Jackson’s internal wholesaler support had such a high ranking that it helped them grab the top spot.  Prudential had the highest variable annuity reviews for different product features, even though they didn’t get the top spot overall.  Advisors liked their guarantees, especially the Highest Daily feature.  Jackson does have nearly 100 subaccount choices as well, which still helped them reach number one.

The ChoicePlus variable annuity from Lincoln National kept them in third place this year.  Ameriprise Financial maintained their fourth place spot year to year.  Nationwide took the fifth spot from Ohio National, who came in seventh.  MetLife was in sixth place this year as well as last.  Sun Life, Allianz Life, and Transamerica finish the top ten for variable annuities.

Written by Rachel Summit

The new annuity suitability model was put in place to protect investors and ensure that they get the best annuities for them, but the extra training required for advisors may have a negative impact on the choices offered to investors.  Darla Mercado of Investment News talks about this double-edged sword in “Annuity exam overload could prompt product pruning.” Each annuity sold now requires a state mandated training course and exam in the states that have adopted the NAIC’s annuity suitability model.  So far nine states are using the model, but it is forecasted that all states will adopt the annuities model in the near future.  Because of the extra training required and the hours that the education and exams will consume, it is possible that advisors will work with fewer carriers and offer fewer products to their clients.

There is a general annuity course taken online which lasts approximately four hours.  After that, advisors must take specific training for each type of annuity product they sell.  This includes fixed annuities, variable annuities, and fixed indexed annuities, among others.  Training for each single product will take about an hour.  Advisors will have to show proof of their training in order to sell an annuity in the states who have already adopted the annuity suitability standards model.  Small insurers are worried that advisors will stop selling their annuities because of the extra training required.  It is possible that they will stick to the big companies like Prudential, MetLife, and Jackson National.  As annuities become more specific and are made to meet the needs of specific clients, this extra training may just keep the best annuities for certain investors out of their reach if their advisor hasn’t gone through the training to sell them.  Hopefully the new standards do not negatively impact the annuity industry that they are meant to help.

As sales of variable annuities increase, many advisors are concerned that companies will not be able to hedge the products.  According to “Surge in VA sales leads to capacity questions” by Darla Mercado of Investment News, advisors worry that companies won’t be able to keep up with the sales increase and are looking deeper into the variable annuities they sell.  LIMRA says that $140.5 billion of variable annuities were sold last year, an increase of 10% from the year before.  Companies are trying to balance offering transparency to their advisors so that they can see how the risk is managed without divulging too much of their strategy.  It can be tough to find out exactly what insurers are doing to manage their risk, but companies like Prudential and MetLife are working with advisors and wholesalers to satisfy the issue of transparency in their variable annuities.

The president of Silverman Financial, Inc. actually flew to Prudential to uncover some answers for himself.  After taking the contracts apart to study them and putting everything back together, he determined that the company had nothing to hide from advisors.  Insurance companies do provide literature to advisors communicating their risk strategy; it’s just that some do it better than others.  For those looking to compare equity linked CDs, annuities and other investments and see how companies manage the risk associated with them, you usually just have to ask for the information.

MetLife started an open communication with advisors during the financial crisis, and although they stopped quarterly conference calls, they still offer information on their hedging and revenue sources through literature.  Jackson National offers advisors a question and answer paper that deals with hedging, interest rate swaps, and more.  Prudential not only offers continuing education on hedging, but they publish a white paper dealing with many different aspects of annuities.  Some companies offer up more information than others, but since the previous three companies account for 40% of the sales of variable annuities, you can see that it is possible to get information to advisors who then pass it on to clients.  It is still important that insurance companies sell more than just variable annuities because you never want to put all of your eggs in one basket.