As the weather heats up in May, so does the competition among insurance carriers that are releasing new features for their variable annuities.
As the weather heats up in May, so does the competition among insurance carriers that are releasing new features for their variable annuities.
Offerings this season include enhanced riders as well as glitzy subaccount choices, or the investments within variable annuities, from Metropolitan Life Insurance Co. of New York, Nationwide Financial Services Inc. of Columbus, Ohio, and Toronto-based Sun Life Assurance Company of Canada, along with others.
"Right now, it's a situation where folks are trying to get a sliver of the competitive angle, primarily in withdrawal benefits," said Richard Byrne, vice president of product management at Massachusetts Mutual Life Insurance Co. of Springfield. "The arms race in the living-benefits world is crazy."
A key month on insurers' product development calendar, May marks a time when insurance companies update VA prospectuses to include their most recent annual financial statements. Because re-registration with the Securities and Exchange Commission is costly, carriers tend to time product changes so they can be incorporated in the updated prospectus.
Afterward, the companies devote their summers to training their wholesalers on the new features, promoting the product to advisers and gearing up for the selling season in September.
"This is a big effort with client seminars, ads and [public relations]. We're constantly developing products in the pipeline," said Mary M. Fay, senior vice president and general manager of Sun Life's annuities division.
'RICHER BENEFITS'
Among the features the industry is introducing, Ms. Fay said, are "richer benefits" than before, including enhancements to annual step-ups and higher withdrawal amounts.
In keeping with that trend, Sun Life's new Retirement Income Escalator, a withdrawal benefit rider released May 5, allows consumers to make incrementally greater withdrawals as they age.
Between ages 591/2 and 69, for example, clients can withdraw 5%. This goes up to 6% for ages 70 to 79 and to 7% for 80 and up.
Customers who don't take withdrawals are eligible for a 7% annual bonus for up to 10 years.
A common theme across benefit enhancements seems to be a larger reward for those who delay gratification: If investors hold off on withdrawals, the benefit base expands at a greater rate.
At least that is the deal clients make with MetLife's enhanced riders, released April 30. The benefit pot compounds at 7.25% annually for 10 years — up from 5% — or until the client makes a second withdrawal.
Wait a decade to withdraw, and the benefit base more than doubles.
Advisers found the arrangement reasonable but were wary of possible trade-offs in exchange for benefit base bonuses.
"Be aware that some will be simple [interest] and others will be compound," said Suzanne Krasna, president of The Krasna Financial Group. The Walnut Creek, Calif., firm manages $25 million.
"One company may offer the 7% compound, but it may be limited on how many years it can really do that," she said.
Carriers, banking on clients' and advisers' desire to spice up investment choices, also have introduced new subaccounts.
For instance, on May 1 Nationwide introduced a new set of funds of funds, the Nationwide Variable Insurance Trust Cardinal Funds, which are tailored to the investor's style.
"What we're seeing across the variable side is a trend toward using broadly diversified investment vehicles," said Tom Hickey, vice president of product and subadviser management at Nationwide.
"Investors are looking for a simple way to get broad diversification without having to select funds on their own," he said.
A set of multimanager funds is also available, including an international-growth option managed by Invesco Aim Management Group Inc. of Houston and American Century Investment Services Inc., based in Kansas City, Mo.
The Security Benefit Group of Cos. in Topeka, Kan., added the Dent Strategic Portfolio, which uses consumer data and other research to invest and navigate through market cycles. The investment option, announced on May 5, works exclusively with the SecureDesigns Variable Annuity.
The offering is managed by Harry S. Dent Jr., president and founder of the HS Dent Foundation, an economic consulting firm in Tampa, Fla. He has written several best-selling books forecasting boom markets, and in 2000 predicted that the Dow Jones Industrial Average would reach 40,000.
Dent Strategic Portfolio is suitable for those who want to pull away from traditional subaccounts, according to Doug Wolff, vice president of business development for Security Benefit.
"We see our competitors offering living benefits in conjunction with traditional allocation among equities and fixed income," he said. "This fund can go in a lot of directions, depending on market conditions; it isn't necessarily stuck in one or two style boxes."
'NOT BULLETPROOF'
Funds managed by celebrity managers don't appeal to all.
"Harry Dent is well known for his predictions in the '90s, but he's not bulletproof," said John O. Hetzel, managing partner of Dallas-based Cadence Financial Advisors LLC, which oversees $7 million in discretionary assets.
In regard to costs, "a couple [of carriers] are high on the funds they're adding: life cycle and asset allocation funds are nothing new, but they make the costs go up dramatically," he said.
Still, some carriers slimmed down their offerings this month.
The Hartford (Conn.) Financial Services Group Inc., for example, last week added investment choices from its Director M variable annuity to its flagship Hartford Leaders product. The change was welcomed by advisers.
"Instead of slapping the Hartford name on 10 annuities, they're just focusing on the one product with all the benefits," Mr. Hetzel said. "You can't overload investors, and the companies are facing that fact."
Not all companies are jumping on the bandwagon, despite seeing a plum opportunity to release something new.
"I'm trying to contain my enthusiasm," said Mr. Byrne, whose company stayed out of the May VA race. "If we change every three or four months, I'm going to rain confusion on the people who are trying to get their arms around this."
E-mail Darla Mercado at dmercado@investmentnews.com.
