VA market splits on issue of living benefits

SEC filings show that another carrier will sell VAs for tax benefits and investment options, not income

Jan 10, 2014 @ 1:22 pm

By Darla Mercado

variable annuities, investment, lifetime benefit, insurance companies, insurers
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Life insurers are putting a few more eggs into the investment-only and living-benefit-free variable annuity basket.

While everyone was preparing for the holidays in December, Jackson National Life Insurance Co. and Prudential Financial Inc. filed new variable annuity contracts with the Securities and Exchange Commission. Just before that, Axa Equitable Life Insurance Co. launched its Investment Edge variable annuity on Nov. 18.

Jackson's Dec. 20 filing is for a “brokerage edition” of its already released Elite Access variable annuity, a contract that centers largely on making alternative investments available to retail investors with the advantage of tax efficiency from the annuity structure itself. Meanwhile, Prudential's Dec. 6 filing is largely bare-bones — there is no information on the subaccount investment options and fees are listed as to be determined — but does not indicate that there is a living benefit. There will, however, be a death benefit.

Prudential's offering looks like it will come in B-share and C-share varieties, which “looks like they're positioning themselves to Jackson's [Elite Access] variable annuity,” said John McCarthy, product manager for annuity solutions at Morningstar Inc. “You can assume they'd go after the regular broker-dealer market with B and C shares.”

Representatives for both Jackson and Prudential declined to provide additional comment on the contents of the filings, but it is clear that they point to the growing bifurcation in the variable annuity pool of offerings: There will continue to be traditional variable annuities with living benefits, but more and more, carriers will be bringing out products that are largely investment-focused. The change is an indication of how carriers have been turning away from long-dated and interest rate sensitive living benefits since the 2008-09 recession.

Since then, insurers have returned to the tax deferral benefits of variable annuities as a new selling point, anticipating an environment of higher capital gains taxes will generate interest in these contracts. Jackson made a splash in 2012 when it launched Elite Access, at the time a major departure from a roster of products that offered living benefits. In the first nine months of 2013, the company scooped up $3 billion in sales of Elite Access, compared to $630.1 million in the year-earlier period.

“The thinking with Elite Access is that it's a simple contract but it's all about the alternative options and educating the sales force,” said Tamiko Toland, managing director of retirement income consulting with Strategic Insight. “[Jackson has] demonstrated that Elite Access is a product that can work.”

The conditions for these investment-only variable annuities seem just right in 2014, with high-net-worth clients expecting to pay large tax bills for last year. The American Taxpayer Relief Act of 2012 brought with it a top marginal rate on long-term capital gains and dividends to 20% from 15%.

“We're hearing from advisers and consumers concern about rising taxes, and the tax efficiency of the variable annuity was a powerful draw in terms of benefits,” said Steve Mabry, lead director of annuity product development with Axa. As far as what the insurer is seeing with its new Investment Edge product, “we're seeing a number of new producers — producers who don't sell variable annuities — and a number of tickets coming in from them,” he said. “It's a new market.”

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