Management at the Hartford Financial Services Group Inc. has been pretty clear that the carrier is keen to reduce its risks from legacy variable annuities. Just how keen is apparent in the offer the carrier is now mailing out to customers.
Indeed, a couple of advisers say the deal is much better than expected. Thomas Fross, owner of Fross & Fross Wealth Management, said that in one case, a client in his mid-60s is being offered more than $1.2 million to walk away from a contract. He said the value is equal to that of the living benefit. The account value is now at $834,493, he said.
“Why would you not accept the offer?” Mr. Fross asked.
Once a mainstay of the variable annuity world, The Hartford started pitching to buy out certain clients in late January. Customers walking away from the Lifetime Income Builder II benefit rider were offered either the contract value on the full surrender date or the contract value plus 20% of the payment base, subject to a cap of 90% of the payment base.
Of 24 clients, representing some $10 million in contract values, only 3 or 4 have an account value where the account value is equivalent to the guarantee value. Mr. Fross and these clients need to determine the best way to proceed.
Paul Mauro says 16 of his clients have received the offer. He says the deal is extremely tempting. “We never thought they'd get the opportunity to cash out early at full value,” said Mr. Mauro, president of Legacy Financial Advisors Inc.
He predicted half of the clients would take the offer. “It's the older clients, clearly, who will take it,” Mr. Mauro said. “It's a mortality play. I'm surprised because I'm not used to seeing win-wins [for the insurer and the client].”
Shannon Lapierre, a spokeswoman for The Hartford, noted that clients receiving plum offers for their VAs — particularly those at or near the amount of their income benefit base — could be benefiting from stronger markets. “As markets have rebounded, it's possible that some contract holders are seeing their value approach the living benefit amount, and because we're waiving the surrender, they're getting close to the full value,” she said.
The insurer hasn't provided a recent update on take-up rates, but surrenders have been rising. U.S. variable annuity net outflows at The Hartford hit $11.4 billion in 2012. The full surrender rate, exclusive of partial surrenders and withdrawal benefits, jumped to 10.9% for the year, about 1.5 points higher than 2011, according to a fourth-quarter call with the carrier's executives.
The buyout was offered to clients representing about 15% of Hartford's U.S. guaranteed minimum withdrawal benefits book and nearly 45% of the net amount at risk tied to these benefits.
“They must really be concerned that the client is going to be in their pocket and that they'll be on the hook for life,” said Mr. Fross