Latest VAs reflect the 'new normal'

Products are sweet enough to attract interest, but less risky for insurance carriers

Nov 27, 2011 @ 12:01 am

By Darla Mercado

Volatile equity markets and record low interest rates have led major variable annuity issuers to rein in sales, but a few insurers are drumming up business with products that reflect the “new normal.”

Insurers such as The Hartford Financial Services Group Inc., Minnesota Life Insurance Co. and Symetra Life Insurance Co. have come up with products that expose the insurers to less risk while offering features that could attract investors.

The Hartford, once the biggest seller of variable annuities, Nov. 16 released a death benefit for its Personal Retirement Manager VA. The so-called Future6 death benefit works in tandem with a guaranteed-minimum-withdrawal benefit and permits income withdrawals that don't reduce the death benefit value.

The insurer, which has dropped out of the top 20 VA sellers, according to third-quarter data from LIMRA, aspires to climb back into the sales leader board.

“We want to be an overall significant player in annuities,” said Steve Kluever, vice president of product and marketing of global annuities at The Hartford.

A greater emphasis on product balance is the key to The Hartford's renewed push in the VA market. New offerings, including the insurer's fixed indexed annuity and immediate annuities, help the company diversify its product options so that it isn't so heavily weighted toward variable annuities, said Rob Arena, head of the insurer's global annuity division.

Further, indexed annuities are inherently less risky for insurers. Customers may capture some limited growth tied to an index, or their accounts may grow by a fixed rate.

As a result, they aren't subject to the same equity market volatility that can make variable annuities difficult for insurers to hedge, actuaries said.

At Symetra, the goal is to increase sales of variable annuities to diversify the product mix, as much of the company's sales are based on fixed insurance products.

Symetra sold $17.3 million in variable annuities year-to-date through Sept. 30, up from $14.1 million a year earlier. By contrast, it sold $1.4 billion in fixed annuities in the first nine months of 2011, up from $1.26 billion a year earlier.

Fixed annuities are linked to interest rates, as insurers pay fixed rates based on the yields that they get from corporate bonds and other fixed-income investments.

Because insurers profit from the spread on those yields, a prolonged period of low interest rates can put pressure on profitability and crimp the ability of carriers to offer attractive rates on fixed annuities.


Low rates mean variable annuities can be a more profitable source of revenue than fixed annuities.

“Symetra has a concentration risk in this interest rate environment because they're more exposed to fixed-rate products,” said Edward Shields, a Sandler O'Neill + Partners LP analyst who covers Symetra.

But the insurer isn't likely to attempt to compete against the VA giants, Mr. Shields said.

By avoiding the temptation to juice up living benefits, which can become costly to hedge, Symetra is ensuring that it grows safely.

Diana McSweeny, a Symetra spokeswoman, was unable to make an executive available for comment.

Minnesota Life in September released a living benefit, the Ovation Lifetime Income rider, which locks in market gains for the benefit base and boosts the base by 200% if the owner waits 10 years from purchase or until the contract anniversary following his 70th birthday — whichever is later — to make withdrawals.

The insurer doesn't expect to become a top-10 VA issuer but wants to keep its name relevant among advisers who already know the carrier for its presence in the 401(k) and life insurance businesses. The retrenchment by large VA competitors represents a chance to step out with a new product offering.

“If you're playing low-key, you can't do that forever and expect to maintain a relevance in the marketplace,” said Daniel Kruse, second vice president and actuary in individual annuity products at Minnesota Life.

This time around, firms ramping up VA sales are being much more conservative.

“With the newer VAs, guarantee rates are lower, fees are higher and the asset allocations are significantly constrained,” said Randy Binner, an analyst at FBR Capital Markets & Co.

Email Darla Merado at


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