Advisers prepare for end of Jackson variable annuity bonanza

Changes also may allow competitors to snag market share

May 22, 2011 @ 12:01 am

By Darla Mercado

News that Jackson National Life Insurance Co. will curtail sales of its popular variable annuity products — likely by limiting investments — has financial advisers on the lookout for the next best thing and its competitors waiting with open arms for an expected uptick in sales.

Advisers prize Jackson National's array of more than 90 investment options, as well as the ability to invest without required asset allocations and the chance to increase clients' withdrawal benefit base by up to 8% annually.

Those generous features had their day at Jackson's competitors, which throttled back their offerings following the financial crisis and amid low interest rates.

Now Jackson is considering doing the same. Tidjane Thiam, chief executive of Prudential PLC, Jackson's British parent, said during a conference call this month that the product changes “will contribute to reduce the risk further and will improve margins through raising fees.”

The changes should take effect by the end of the year.

Between now and then, Jackson should see a spike in sales as advisers realize that an attractive product is about to become unavailable. And its competitors are jockeying to be next in line for the unofficial title of “most-generous variable annuity.”

The leading candidate, according to several advisers, is Ohio National Financial Services Inc. The insurer has kept a low profile but punched above its weight by offering a withdrawal benefit rider that provides 8% simple interest growth during the first 10 years assuming that no withdrawals are taken, plus annual step-ups to lock in market gains.

Although the riders require investment restrictions, advisers either can opt to use one of the insurer's asset allocation models or customize a portfolio from a suite of funds. At least 30% of the funds must be allocated to a fixed-income portfolio.

It isn't just Ohio National's good performance and fairly aggressive portfolio that have advisers looking its way. The insurer's low profile compared with its larger competitors is also appealing.

“They're more conservative as far as their marketing, and their pay is slightly less than the others,” said Richard D. Brandhorst, vice president of marketing, equities and insurance at FSB Warner Financial Inc. “But they're a high-quality company that says, "Never mind the sizzle.'”

Advisers might get 7% on a VA sale from a larger insurer, but Ohio National will pay 6% or slightly less, Mr. Brandhorst said. That has helped it keep growth manageable and maintain a lower profile.

Aside from Ohio National, advisers said that other low-profile players such as Transamerica Life Insurance Co. and Guardian Life Insurance Co. of America stand to win their share of business.

Transamerica's VA offering features attractive age banding and guarantees that are priced according to the risk in the customer's investment portfolios.

The insurer's Retirement Income Max withdrawal benefit also offers 4.5% withdrawals under age 64, 5.5% between ages 65 to 74 and 6.5% withdrawals for ages 75 and up.

“The withdrawal amount is pretty strong at the older ages,” said Joseph B. DeDomenico, a financial adviser with DeDomenico Wealth Management.

He also likes Guardian's America's Target 300 withdrawal benefit, which raises the benefit base to 300% of premiums if the client can wait 15 years to begin taking income.

“They're a good player if you're a younger client, say, around 53 or 55,” Mr. DeDomenico said. “It's a little more expensive than the others, but I don't think the market is going to triple over 15 years.”

LARGE AND IN CHARGE

Less-generous products from Jackson also might drive business to mammoths MetLife Inc. and Prudential Financial Inc. because of their massive footprints.

Advisers point to MetLife's attractive 6% Guaranteed Minimum Income Benefit Max but also like the investment variety that they get in the insurer's older 5% GMIB.

“MetLife is a potential player,” said Kevin Distad, an adviser at Counsel Financial Inc. “We care less about the restrictions of the funds than we do the income.”

Success in the adviser market also depends on having a strong wholesaling force alongside an attractive product, said Jeff Rosen, managing partner and founder of FAccess, a VA research firm. Even if Jackson pulled back on certain aspects of its product, it would still likely remain near the top of the VA sales charts because it is entrenched, he said.

Jackson's LifeGuard Freedom Flex, a customizable GMIB in which the client can choose the size of an annual growth rate for the benefit base and frequency of a step-up, provides a buffet of living benefits that makes the insurer stand out among its peers, Mr. Rosen said.

“They also have great wholesalers,” he said. “Advisers stick with stories they know.”

Stephen Pelletier, president of Prudential Annuities, said that while the insurer historically has been content to grab market share, it is good to see other contenders step in to dilute the market share concentration near the top.

“A lot of our growth in recent years has been through market share capture,” he said. “But it suits our purposes to see overall industry growth and to see more firms taking a competitive posture in the business.”

E-mail Darla Mercado at dmercado@investmentnews.com.

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