New York Life Insurance Co. is stepping up its variable annuities game, all the while buffering itself from the risks its rivals have faced in offering lifetime income.
The mutual life insurer released its Income Plus variable annuity in August, making it available through its 12,000-strong captive-agent force.
Unlike traditional variable annuities with income riders, New York Life's offering basically combines two annuity products. The first is a traditional VA accumulation account with about 50 different options, in which investments grow on a tax-deferred basis. The other is a deferred-income annuity. The income portion of the product is similar to New York Life's Guaranteed Future Income Annuity, which clients can buy now and activate in the future to receive payments.
“We're launching this now when many other carriers are derisking or backing out of the market, because we think this product design gives us a win-win-win value proposition” for clients, agents and the company, said Matthew Grove, head of New York Life's annuity business.
The optional Guaranteed Future Income Benefit rider gives clients a minimum level of guaranteed-income payments for life, with the opportunity to increase that payment stream if the markets fare well. This rider sets a guaranteed-income floor, and payments won't decrease if markets decline. The payment stream will begin on a date selected by the client.
The GFIB rider costs 1%, which applies only until the benefit is fully funded. The VA chassis has a mortality-and-expense fee of 1.35%. Fund fees are extra.
“In a traditional guaranteed living benefit, the fees are tied to the benefit base,” Mr. Grove explained. “As the benefit base goes up every year, the fees go up every year. As the benefit base never goes away, the fees never go away, even after income starts.”
“Income Plus works differently,” he added. “As the income gets funded over time, the fees go down — and the fees totally go away after income starts.”
Income Plus also comes with a free income benefit rider that allows investors to use their annuity money to buy income streams that begin when they want. It does not provide them with a minimum guaranteed level of income at purchase, however.
What New York Life is doing differently in risk management, compared with other insurers, is reflected in the way it provides the income stream. The size of the payments from the income rider depends on the client's age, gender and expected income start date. Using that information, the insurer comes up with a payment stream based on how much it can pay the investor, based on New York Life's actuarial data.
“Unlike the traditional variable annuity, where everyone gets the blanket 5% rollup and payout, we give you a customized quote that reflects what we can afford to promise you,” Mr. Grove said. Investors can choose to start income as early as two years from purchase or as far out as 40 years.
Most withdrawal benefits on the market also permit the client to turn on or turn off income when they want. From a risk management perspective, that's costly for insurers to offer. Because customers with New York Life are locking in a date when they expect to receive income, there's less unpredictability for the carrier, thus reducing the cost of hedging, Mr. Grove said.
Investors who use the so-called GFIB rider are subject to some investment restrictions: They can't place more than 20% of their assets in the most aggressive funds, and at least one-fifth of their account value must be allocated to the most conservative offerings. Moderate funds fill up the remainder, Mr. Grove said.
Clients can transfer money from the accumulation side of the VA to the income benefit component, meaning that they are locking in future interest rates rather than going off of a withdrawal rate that's based on today's low rates.
“Income purchases are deferred into the future, so when transfers occur, you're locking into future rates,” Mr. Grove added. “To the extent rates rise, you benefit from that in a way you wouldn't with traditional products.”