It is that time again.
Forget warm weather and cookouts. For insurance companies, May means new variable annuity contracts and revised product designs.
A big theme of the 2011 season is “selective re-risking” as insurers gild certain aspects of their living benefits but also make changes to help temper market volatility and reduce their own risk, said Steven D. McDonnell, founder of Soleares Research LLC.
A total of 49 contract changes were filed with the Securities and Exchange Commission in the first quarter, down from 140 changes a year earlier, largely because 2010 was an outlier after a retrenchment post-2008. The volume is a sign that things are back to normal, said John McCarthy, product manager of adviser software and annuity solutions at Morningstar Inc.
Although the number of filings may be down, that doesn't mean that they are plain-vanilla.
Financial advisers are licking their chops over the more generous offering from MetLife Inc. The VA riders announced last week, the Guaranteed Minimum Income Benefit Max and the Enhanced Death Benefit Max, give customers 6% compounded growth and 6% withdrawals per year of the benefit base.
“For the right client who isn't worried about getting all the upside and who only wants income, it's pretty competitive,” said Kevin M. VanDyke, president of Bloomfield Hills Financial.
The new feature is richer, compared with the insurer's GMIB Plus III, which offers a 5% compounding income and benefit base.
But advisers who opt for the updated GMIB will have fewer investments to choose from. Those include the AllianceBernstein Global Dynamic Allocation portfolio, the AQR Global Risk Balanced Portfolio, the BlackRock Global Strategies Portfolio and the MetLife Balanced Plus Portfolio. Clients can also opt to invest in the more conservative Pyramis Government Income Portfolio.
MetLife's new benefits had been on the drawing board for the past year and a half, said Robert E. Sollmann Jr., executive vice president and head of retirement products.
Generally, the investment options use a tactical approach to manage exposure to riskier asset classes in response to changing market conditions.
As a result, customers' returns are tamer, as the insurer aims for returns similar to a fund allocated 60% equity and 40% to fixed income. This arrangement allows the insurer to trim some of its hedging costs, Mr. Sollmann said.
Hedging at the insurer level for guarantees remains the same.
“We pass along some of the savings in the form of a higher roll-up rate and the opportunity for more-consistent returns over the long term,” Mr. Sollmann said.
Advisers point out that though the fund selection is limited, clients who prize a higher income percentage over a potentially higher account value are likely to go for the product.
“The new MetLife annuity is No. 1 on our radar screen by a long shot,” said Thomas B. Hamlin, founder of Somerset Wealth Strategies Inc. and branch manager for Raymond James Financial Services Inc.
“Inflation is up higher than the government is leading you to believe, and so meeting with new clients — their account values are down and they're taking a smaller percentage of the income,” said Thomas M. Fross, a partner at Fross & Fross Financial LLC. “Met is saying that they're going to add to that income, and this is for people who need it.”
Being limited to four models isn't necessarily bad, Mr. Fross said.
Not all advisers share that opinion, however.
“We like to insure riskier assets and then buy bonds on our own,” said Bruce Cacho-Negrete, an adviser at The Starner Group of Raymond James & Associates Inc.
He has been a big seller of Jackson National Life Insurance Co. products, as they don't currently limit investments, but that could change.
Last week the insurer said that it would curtail skyrocketing sales of its variable annuities and likely would do so by adjusting its investment options (see related story, Page 1).
If that happens, all bets are off, Mr. Cacho-Negrete said.
“We'll be watching it very carefully because if that goes, then we'll probably move right back to Ohio National [Financial Services Inc.],” he said.
BACK IN THE GAME
After being burned by overly generous variable annuities during the 2008 downturn, The Hartford Financial Services Group Inc. and John Hancock Financial Services Inc. have filed new withdrawal benefits with the SEC.
The Hartford's Future5 offers a 5% step-up, plus a 5% withdrawal benefit, while its Future6 provides a 6% step-up and a 4% withdrawal at 65, according to Morningstar. The products haven't officially launched yet, so The Hartford declined to discuss them.
John Hancock, which ended sales of three share classes of its AnnuityNote variable annuity at the end of April, has developed Income Plus for Life 6.11, a lifetime-withdrawal benefit with a 5% withdrawal and 5% step-ups over 10 years or the highest anniversary value, according to Morningstar.
Security Benefit Life Insurance Co., which also went through rocky times in 2008, is ramping up development of a fee-based VA called EliteDesigns. This variable annuity comes with 200 different subaccounts, no commission and an optional return-of-premium death benefit.
“The usual suspects in the VA space are built around a living benefit, and we wanted to bring an investment platform to the marketplace that would give the client a significant amount of investment choices with a tax-deferred wrap,” said Jim Mullery, senior vice president of Security Benefit.
Finally, insurers are bolstering their investment offerings. Jefferson National Life Insurance Co., which sells a flat-fee variable annuity, has added 24 funds, including the VA version of Putnam Investments' Absolute Return 500 fund. The offering aims to beat the rate of inflation by 5% over a rolling three-year period.
Axa Equitable Life Insurance Co. added another dozen funds to its lineup for its Retirement Cornerstone variable annuity, bringing its total series of subaccounts to about 110, said Steven Mabry, senior vice president of annuity product development. Retirement Cornerstone operates on two accounts: one is performance-based, while the other is income-focused, and clients can sweep gains from the performance side into the income account.
The new additions to the performance side of the variable annuity include the Ivy Asset Strategy Fund, the Rydex Managed Futures Strategy Fund and, interestingly, target date funds from Fidelity Investments.
“We're finding some clients are investing strictly on tax deferral,” Mr. Mabry said.
Axa also made its withdrawal benefit standard with an opt-out provision, instead of making it optional.
The subaccount change at Axa thus far has been “the most interesting,” said Kevin VanDyke, president of Bloomfield Hills Financial.
“You can mix gold and other investments,” he said. “If you talk to the right client and they want to take some of the risk and share it with Axa, then it works.”
E-mail Darla Mercado at dmercado@investmentnews.com.
