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Variable Annuity Changes from MetLife, Prudential, Hartford

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.

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