Variable annuity providers are betting that the insurance wrapper surrounding their products will be a compelling incentive for investors interested in alternative assets and tax strategies.
“More companies are going for alternative investments, catering to a higher-net-worth clientele,” said Joan E. Boros, who is of counsel at Jorden Burt LLP. “There is a recognition that among the affluent, annuities aren't just for Max the barber.”
In previous years, VAs were sold based on aggressive roll-ups and withdrawal benefit riders. Now, however, with the near-demise of generous income benefits, distributors' conversations with advisers center more on tax deferral and low costs. And as another feature to attract wary advisers, more providers are offering alternatives.
“There are certain categories that clients said would be great to have within a tax-deferred strategy,” said Jeffrey K. Cimini, president of Fidelity Investments Life, who noted that many investments are tax-inefficient outside of a variable annuity.
Whether financial advisers buy into the tax-deferral emphasis remains to be seen.
“If taxes on dividends and capital gains go up, many advisers will focus on tax deferral,” said Zachary Parker, first vice president of income distribution and product strategy at Securities America Inc. “But until that's concrete, we don't think many will flock toward that product yet.”
ADDING NEW FEATURES
New filings at the Securities and Exchange Commission reveal the extent to which carriers are adding alternatives, as well as other features and contract changes. During the first quarter, insurers filed 59 contract changes, compared with 49 in the first quarter of last year, according to John McCarthy, product manager for annuity solutions at Morningstar Inc.
Jackson National Life Insurance Co.'s Elite Access VA focuses almost exclusively on alternative assets and strategies, and provides no death benefits.
Metropolitan Life Insurance Co. has added access to commodities as part of an array of new investment choices. Specifically, the insurer has added a trio of new portfolios to its Protected Growth Strategies, a series of seven investment options that clients must choose if they select the insurer's GMIB (guaranteed minimum income benefit) Max — a feature that offers 5% growth and 5% income withdrawals.
One of the three portfolios is Invesco Ltd.'s Balanced-Risk Allocation Portfolio, which invests in equities, fixed income and commodities.
Because it provides no guaranteed minimum death benefit, Fidelity Investments Life Insurance Co. is playing up the addition of four new investments, including the Pimco CommodityRealReturn Strategy portfolio, to its variable annuity chassis, which has 59 investment options.
The Pacific Investment Management Co. LLC fund provides exposure to energy, precious metals, livestock and agriculture.ALL ABOUT INCOME
For many insurers, though, the story continues to be about the best way to obtain income.
Allianz Life Insurance Co. of North America this month released its Income Focus benefit rider, which starts clients at an income floor percentage, depending on their age when they add the feature.
For instance, those buying the single-life version of the rider between 45 and 64 are starting with an income percentage of 3.75%. In years when the contract performs well, the percentage goes up by 1%; it holds steady in down years.
Investment options for this feature are limited to a series of volatility management portfolios, which include Pimco's Global Multi-Asset Managed Volatility portfolio.A FOCUS ON INCOME
Symetra Life Insurance Co., better known in the indexed-annuity space, has filed for The True Variable Annuity, which focuses on income. The product has a prepaid-annuity option that provides annual lifetime payments and invests in portfolios that are chosen according to the customers' birth year. The portfolios, reminiscent of target date funds, hold bond investments.
Meanwhile, Securian Financial Group Inc. has cranked down slightly on the joint option for its withdrawal benefit, pulling back the percentage for joint lives to 4.5%, from 5%. However, the carrier has added a feature to its living benefit that will allow investors to take one early withdrawal from the contract without destroying it, explained Dan Kruse, second vice president and actuary in Securian's individual annuity products division.
The insurer offers an annual 6% growth rate on the protected value of a VA and doubles it after 10 years. Investors previously lost both of these features if they took a withdrawal too soon.
Now the insurer will “forgive” those who take these withdrawals by forgoing the growth credit for one year and dropping the feature that doubles the benefit base in 10 years. As long as the policyholder doesn't take another errant withdrawal, he or she will get the growth feature back in the following year, Mr. Kruse added.
“We're not trying to create the next "oh my gosh' benefit rider,” he said. “We're a selective innovator, and we see a market niche we want to take advantage of.”
dmercado@investmentnews.com
