Corporate mandate to slow accelerating sales seen as prudent, but advisers express concerns
Under orders from its corporate parent to slow down the torrid sales pace of its generous variable annuity contracts, Jackson National Life Insurance Co. hasn't yet revealed how it will take its foot off the sales accelerator.
“Some of the changes will contribute to reduce the risk further and will improve margins through raising fees,” said Tidjane Thiam, chief executive of Jackson's parent, British insurance giant Prudential PLC, which last week announced first-quarter variable annuity sales of $4.6 billion — up 45% from a year ago.
For some time, broker-dealer executives have been questioning how the insurer could offer a wide array of subaccount investments without any limitations on allocations. Jackson's flexibility in investment choice has catapulted it to third place among VA sellers, from 12th in 2008. With $14.7 billion in sales last year, up from $6.5 billion in 2008, Jackson commands an 8% market share, according to data from LIMRA.
The carrier is the top variable annuity provider in the independent-broker-dealer channel, according to data from InvestmentNews and Morningstar Inc.
Concerns about risk exposure in the current low-interest-rate environment led Jackson's two biggest competitors, Prudential Financial Inc. and MetLife Inc., to throttle back their offerings this year.
Prudential, the top VA seller, in January reduced the compounded growth on its annuity's highest daily account value to 5%, from 6%, while MetLife in February adjusted its internal calculations to reduce the income annuity customers receive when they activate their GMIB Plus income benefit rider.
To reduce demand, Jackson may make its products less attractive by adjusting its pricing or by “reducing features and benefits,” said Donald H. Chu, a credit analyst at Standard and Poor's Financial Services LLC.
“The Jackson contract is pretty robust, so a move to get a little more conservative wouldn't surprise us,” said David Provinsal, managing partner of Paradigm Wealth Management LLC. “They were definitely the most flexible from an investment management standpoint.”
“It's evidence to me that both the industry and advisers continue to underestimate the long-term risks of these generous programs,” said Robert K. Haley, president of Advanced Wealth Management.
For its part, Jackson National said it is “very comfortable” with its VA portfolio,
“We were more conservatively priced than virtually all of our competitors throughout the crisis,” said company spokesman Andrew Silver, who added: “We are committed to the VA business.”
Seeing how openly advisers embraced Jackson's VAs, more than a few were disappointed to hear about any possible changes.
Brian Horn, a financial adviser at Somerset Wealth Strategies Inc., an affiliate of Raymond James Financial Services Inc., said he would have to see the degree to which Jackson changed its offerings to determine how he'd proceed.
“I don't think [the changes] will slow them down much, but I'd have to see the adjustments first to be confident about that,” Mr. Horn said.
Fee hikes and drastic contract changes are certainly possible, of course, but that could not take place until Jackson files those changes with the Securities and Exchange Commission, where approval can take 60 or more days.
“You can only raise fees so much before the adviser raises his hands and says he's had enough,” said Douglas Lockwood, principal of Harbor Lights Financial Group Inc.
Mitchell Kauffman, principal of Kauffman Wealth Services, an affiliate of Raymond James Financial, said that he is disappointed to hear of a change in direction at Jackson, which he considers to be innovative.
“Just in the last year, they came out with an open-benefits platform that lets you custom-design your benefits,” said Mr. Kauffman, who hopes the company doesn't backpedal on its offerings.
Advisers said that depending on the steps Jackson decides to take, competitors — namely Ohio National Financial Services Inc. and MetLife — might seem more attractive.
Ratings Reaction
From a ratings agency point of view, Jackson's move is a positive event, said Joel Levine, senior vice president and insurance analyst at Moody's Investors Service.
Moody's has had an eye on the level of Jackson's variable annuity concentration. Scott Robinson, a senior vice president at Moody's who covers Jackson, has noted that if variable annuities were greater than 60% of Jackson's total statutory liabilities, then it would place downward pressure on the insurer's rating.
“We've commented in the past that this rapid growth at Jackson is somewhat of a concern,” Mr. Levine said. “From their point of view, slowing sales isn't a bad thing; if they do some things that make the business more profitable and less risky at the expense of losing sales, then that's a good trade-off.”
