Variable annuities adjust

May is here -- and so are variable annuity updates. But it's a far different world for the once-highflying insurers that used to dominate the market. Since the financial crisis, historic low interest rates have forced more and more carriers to impose higher fees. Some have looked to reduce their equity market risk. Others have cuy back substantially on once-generous living benefits. The changes announced this month follow those themes, said Tamiko Toland, managing director for retirement income consulting at Strategic Insight. “There are more managed-volatility funds and more adjustments, a combination of what is absolutely necessary and what's driven by the market,” she said. Carriers have another thing to worry about: managing their variable annuity business relative to the businesses of their peers so they don't take on excessive flows that otherwise would go to a competitor. Companies that have been slow to make drastic changes are finally getting around to them. “Companies that haven't made many adjustments lately make them in May,” Ms. Toland said. “That's consistent with what we've seen in the market in the last couple of years. Companies need to stay in the same relative location with benefits or else they invite excess inflows.” Perhaps the biggest unveiling this spring is MetLife Inc.'s Shield Level Selector, which is not a variable annuity but a registered single-premium annuity that's a cross between an indexed annuity and a structured product, according to Elizabeth Forget, a senior vice president at MetLife. Customers' returns can be tied to the performance of five index options. However, those earnings are subject to caps, and MetLife can buffer some or all of the client's losses. This product has a couple of death benefit options but no lifetime-income benefits. “It's more for a pre-retiree as opposed to a close-to-retirement-age person,” Ms. Forget said. “They want to accumulate assets and have some protection. This is not meant to be an income product.” The benefit for insurers who offer these structured products is that the companies won't be on the hook for long-dated liabilities tied to lifetime income, and the clients' accounts won't have the same growth potential as variable annuities of the past. Axa Equitable Life Insurance Co. already offers such a product, and Allianz Life Insurance Co. of North America plans to release one as early as this fall. Looking to slow growth of the number of new policies, top-five player Lincoln National Corp. will be cutting back income benefit payouts for joint survivorship living-benefit riders by 50 to 100 basis points. The insurer brought in $2.9 billion in variable annuity deposits in the first quarter, up 35% from the year-earlier period.

Cost Boost

Price increases still are a staple of the May filing season. Annuities giant Jackson National Life Insurance Co. boosted the cost of its LifeGuard Freedom Flex guaranteed- minimum-withdrawal benefit, which applies either 5%, 6% or 7% bonuses, plus an annual step-up. At the highest end of the spectrum, a Freedom Flex features a 7% bonus, annual step-up and an optional income upgrade table that costs 1.5% (up from 1.35%). Maximum charges have been pushed up for this feature to 3%, from 2.7%. Jackson stopped offering step-ups to the highest quarterly contract value on Freedom Flex as of April 29. Clients who bought the single-life version of the benefit used to be able to get a step-up to the highest quarterly contract value. Now they can get only the annual step-up. For joint life, Jackson continues to offer the step-up to the highest quarterly contract value for the 5% and 6% bonus versions of the rider. Also on April 29, Jackson stopped offering its SafeGuard Max, a guaranteed-minimum-withdrawal benefit with a five-year step-up. New funds are all the rage among insurers, namely those that use managed-volatility strategies. These strategies aim to adjust clients' equity exposure when markets rise and fall. Nationwide Financial, for in¬stance, added a slate of four managed volatility funds: the NVIT Cardinal Managed Growth Fund, the Cardinal Managed Growth & Income Fund, the Investor Destinations Managed Growth Fund and the Investor Destinations Managed Growth & Income Fund. Other companies are bolstering their investment offerings. For instance, Jackson National has added 20 more subaccounts to its Elite Access variable annuity platform. This particular VA is focused more on providing access to alternative investments than giving clients lifetime income. Some of Jackson's new additions address the potential for changes in the interest rate environment, including the Curian Guidance-Interest Rate Opportunities portfolio. Prudential Annuities has added several portfolios to its platform, all of which are asset allocation models. They include the AST BlackRock iShares ETF portfolio, the Defensive Asset Allocation portfolio and the Franklin Templeton Founding Funds Plus portfolio. The carrier now offers a total of 21 asset allocation portfolios under its annuity investment platform.