Annuity FYI Blog

On the heels of ING’s negative press regarding variable annuities, their shares fell an average of 5% this week.  This information comes from Henry Steelman’s Annuity News Journal article, “Shares in ING Group Fell 5% Wednesday.”  ING is a huge financial institution all over the world covering banking and investment services as well as variable annuities and life insurance needs.  The downward trend in equities and lower annuity rates have taken a hit on ING’s variable annuities, so much so that the company expects a charge of $1.5 billion for its U.S. insurance unit.

The investment portfolios tied to their variable annuities have been under-performing and the company is paying out much more in premiums because of increasing life spans.  Moody’s lowered ING Group’s financial rating in the U.S. from A2 to A3 and Fitch lowered their ratings as well.  Investors were likely reacting to these financial ratings decreases in addition to the news.  Shares were down 5% in Amsterdam, then closed down 2%.  In the NYSE, ING’s American deposit receipt was down 8%, then closed down 3%.  The company plans to use contingent funding and review many aspects of their variable annuities going forward.  Many analysts are telling investors not to sell their shares of ING just yet.

Written by Rachel Summit

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Ratings company A.M. Best has shown concern lately over marketplace happenings that may push them to downgrade some ratings.  Due to the government’s arguing over the debt crisis and many weak European economies, the U.S. Life/Annuity sector may have its rating downgraded to negative from its current rating of stable.  The Insurance Networking News article “Possible Revision to Rating Outlook for U.S. Life/Annuity Sector” explores the consequences of the ratings.  Life insurance companies’ stability are being individually reviewed to see what happens to their risk-adjusted capitalization during times of economic stress.  Some companies are more affected than others by the debt crisis and the falling European economies.  Those companies who show a higher decline and those with a large amount of domestic and foreign sovereign credits may see their ratings decline.

The biggest stressors right now in the U.S. Life/Annuity sector are uncertainty in the global markets, higher volatility in the equity markets, a continuous weak real estate market, and unemployment coupled with low consumer confidence.  Insurance companies are having a harder time increasing their revenues and earnings.  Products like equity linked cds, fixed indexed annuities, and more are affected by the changing markets.  While A.M. Best believes that raising the debt ceiling will help the financial markets’ stability in the short term, they think that other long term solutions are necessary.  However, A.M. Best does acknowledge that many companies are being proactive to ensure their capital is protected, their portfolios are lower risk, and they are positioned for growth.  If the annuity ratings outlook is downgraded, most insurers hope that their actions toward market protection will keep them positive.

Transamerica Life Insurance Company is working on four new variable annuities with CUNA Mutual Group.  The variable annuities will be offered to credit union members according to the CU Insight press center.  They’ll be included in the MEMBERS brand of products and will be named MEMBERS Landmark, MEMBERS Liberty, MEMBERS Extra, and MEMBERS Freedom.  Each variable annuity offers different features for credit union investors.  The four new variable annuities are replacing the previous variable annuity offerings, but they will not affect credit union members who already carried those variable annuities.  Starting May 2 of this year, the MEMBERS brand of variable annuities will be offered in most states.

CUNA Mutual has offered annuities to their members since the 1980′s, but this is their first partnership with Transamerica.  Transamerica is an AEGON company, which has been in business since the early 1900′s.  They have an A+ (superior) financial strength rating from A.M. Best.  This partnership of variable annuities will be added to CUNA Mutual’s other annuity products, which include indexed, fixed, and single premium immediate annuities.  They pride themselves as having an “all-weather” portfolio of products.  Credit union members are being offered an expanding product line of variable annuities because annuities are becoming more popular in retirement for their guaranteed lifetime income.  CUNA Mutual realizes the importance of annuities for their members who are both saving for and living in retirement.

Although fixed annuity rates are low right now, they are following the trends of similar products like CDs and treasury bonds, so investors have to keep it in perspective.  The Insurance News Net article “Do Fixed Annuity Rates Matter Right Now?” by Linda Koco tries to put the lower rates into perspective for us.  According to the Fisher Annuity Index, which tracks rates over one-year periods, 5-year fixed annuity rates were 2.23% as of January 31.  That is a decline from the same product last year which offered an average rate of 2.64%.  Since other similar investments are showing the same interest rate trends, fixed annuities are still a good investment option as a source of guaranteed lifetime income.

Fixed annuity rates did start increasing in February, according to the same report.  There are not too many products out there offering rates greater than 3%.  The highest rate investors can get for a 5-year fixed annuity is 3.5% right now.  One way to get a better return from fixed annuities is to divide your money into multiple products, such as putting some in 3-year, 5-year and even 7-year products offering higher interest rates.  The 7-year fixed annuity rates can be as high as 4%.  The majority of fixed annuity investors have their money in 5-year products right now.  There are even a handful of wealthier investors putting their money into companies with lower ratings that are offering higher interest rates.

Some advisors recommend investing in fixed indexed annuities to look for better returns.  This way investors get interest credited based on one of the external stock market indexes.  The different policy features that are offered with fixed indexed annuities are drawing clients in.  Guaranteed Lifetime Withdrawal Benefits (GLWBs) and death benefit guarantees are two of the most popular right now.  Investors still care about their annuity rates, but in this type of environment they just can’t be the most important feature.

Jackson National Life Insurance Company saw a 37% increase in sales during the first three quarters of this year, due mostly to a great increase in sales of variable annuities.  In the Annuity News Journal article “Jackson National Sales Rise To $14 Billion,” Christi Roberts says that the company’s sales of $14.3 billion jumped 37% from the same time frame last year.  Sales of Jackson’s variable annuities increased 57% to nearly $10.5 billion.

President Mike Wells stresses that Jackson has seen this increased growth because they are offering products with a higher value rather than lowering quality to obtain a bigger share of the market like some of their competitors.  10.5% of their increase came in the first half of the year capping off three quarters with the highest retail sales of variable annuities.  Jackson sold $1.88 billion during the second quarter of 2010, which was the most they have ever sold in one quarter.  They also saw the largest growth of any company in their industry between June 2009 and June 2010 as the company assets increased by over 45%.

They began offering two new lifetime guaranteed minimum withdrawal benefits this year.  One combats taxes by allowing investors to increase the amounts they withdraw.  They also introduced the first customizable GMWB.  Whether an investor is looking for a death benefit annuity or other guaranteed benefits, between this new GMWB and the 8 new portfolios being offered by Jackson, they will find what they need.  Jackson maintains an ‘excellent’ rating from all four of the financial ratings firms, and has over the past seven years.