MetLife Leapfrogs Over Prudential

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.

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