Annuity FYI Blog

Sammons Retirement Solutions is moving forward with a new variable annuity despite many carriers steering clear of variable annuities.  Since interest rates have been low and the stock market volatile, insurers like MetLife and Prudential have lessened their variable annuity business.  Sun Life Financial, out of Canada, actually left the variable annuity business altogether.  These companies worry about hedging their living benefit guarantees with a less than ideal financial market.  But Sammons says that you just have to focus on the other benefits variable annuities have to offer, those related to tax deferral.  This information comes from Darla Mercado’s Investment News article, “Others retreat, but this carrier is charging into the VA business.”

Sammons has been a staple of the fixed annuity market in the past, but is excited to introduce their variable annuity to the industry.  A new unit of Sammons Financial Group, Sammons Retirement Solutions is also the sister company to Midland National Life Insurance Co.  Sammons’ variable annuity will have up to 80 different choices in the investment menu.  They believe that focusing on simplicity and the tax-deferral benefits of variable annuities will make them successful in this new endeavor.  By staying away from the guaranteed living benefits that are stressing out insurers, Sammons is able to keep costs low and choices high.  They have chosen to compare annuities based on their ability to defer taxes throughout the accumulation period.  This switch in focus on the benefits of variable annuities is likely to be a new trend in the marketplace.

Written by Rachel Summit

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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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While Americans have been focused on increasing education about annuities and retirement income options, our neighbors in Europe are dealing with the same issues.  MetLife Europe UK forecasts a 65% increase in retirees asking financial advisors about annuity products.  In the FT Advisor article, “IFAs expect rise in advice on annuities: MetLife,” Aamina Zafar says that fixed term annuities like the 5 year fixed annuity will become increasingly popular over the next two years.  Retirees and financial advisors are calling for more innovation and new products to help retirees.  They believe that better options should be out there to finance retirement.

Unfortunately, 47% of those surveyed did not use a financial advisor’s help when making decisions regarding their retirement income planning.  Of those, 17% admitted to regretting that choice, while it’s likely that more actually regretted it.  About 27% of retirees sought the advice of a financial advisor for retirement decisions, 21% used their employer’s 401k annuity or other retirement plan, and 9% just asked their family and friends for advice.  In order to get retirement income, half of retirees were drawing down their savings and capital rather than receiving income payments from annuities or pensions.  No matter what retirement vehicle you use, speak with an expert to help give you all of your options.

Written by Rachel Summit

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In the Wall Street Journal article, “Restyled Annuities Offer Fewer Choices,” Leslie Scism says that variable annuities with lifetime income guarantees don’t have as many investment options as they did a few years ago.  When the market was stronger, insurance companies used a wide range of investment options to compete with other insurers.  Once the market took a steep downturn, while the minimum income guarantees were fantastic for investors, insurance companies took a hit to keep their promises to investors.  Insurers are now requiring most investors to choose a more conservative investment mix, something they refer to as reduced volatility.

MetLife, Hartford Financial, and AXA all have new products that limit investors from having the majority of their money in high risk investments.  This helps protect both investors and insurers from huge swings in the market, while still keeping the income guarantees annuity products are known for.  By giving up complete control over how their money is invested, people are helping keep the insurance companies in tact so that their income guarantees will be around when they start taking annuity payments to last their lifetime.

Some advisors are not happy with the changes to variable annuities that insurance companies are making.  But the article gives many reasons why variable annuities are still a valuable investment, despite a decline in the options available for investing.  The value of an increasing benefit base is great and will not happen if the underlying accounts happen to suffer large losses.  These new variable annuities are good for those looking for predictability.  They’re still a better choice than low fixed rate investments right now and their popularity is shown in part by the success of Prudential’s version of the less risky variable annuity.

Written by Rachel Summit

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