Life insurers show their hands with new VA filings

Regulatory filings reveal new living benefits, investment-focused annuities or exchange offers for existing clients

By Darla Mercado

May 20, 2014 @ 2:03 pm (Updated 3:50 pm) EST

You know spring has sprung when life insurers post new variable annuity filings with the Securities and Exchange Commission.

This year, some life insurers are again offering generous living benefits plus new investment-focused annuities. Meanwhile, others are filing exchange offers for clients who already own contracts.

The return to living benefits at a time when interest rates are still low is especially interesting, noted John McCarthy, product manager at Morningstar Inc.

“If you look at the 10-year Treasury, it's been steady. It went up in 2013 and crept down a little in 2014,” he said. “Maybe [the build-up in living benefit features] is in anticipation of higher rates.”

As InvestmentNews has reported over the last two years, the VA industry is at a crossroads. Many carriers who were previously big sellers of annuities with living benefits have sought to moderate their volumes, as VAs not only expose them to equity market risk but their living benefits are sensitive to low interest rates.

Enter the latest product innovations over the last couple of years: Investment-focused variable annuities that are free of living benefits and hybrid annuities that use structured products to protect principal. The latter product also tends to come without living benefits.

This spring, Prudential Financial Inc. launched Prudential Premier Investment, a variable annuity that prioritizes tax-deferred growth within the contract, plus tax-free transfers between the underlying portfolios. There are no living benefits, but there is an optional return of premium death benefit. Further, there are about 50 subaccount options for clients to choose from.

Pru's product will come in B-share and C-share varieties, with expenses running at 110 basis points for the B-share chassis and 135 basis points for the C-share.

What's unique about this product is the way the fees are assessed: 50% of the expenses are based on the account value and the other half is based on the premium, noted Bruce Ferris, president of Prudential Annuities Distributors.

“The expectation is that you'll have appreciation in assets over time,” he said. “As the assets appreciate, the charges go down as a percentage.”

In the world of investment-only VAs, AXA Equitable Life Insurance Co. filed an I-share version of its Investment Edge variable annuity, according to Mr. McCarthy. Investment Edge is a fairly new product, joining AXA's product roster last fall in B- and C-share versions. I-share VAs are designed for the fee-based adviser set.

On the exchange offer front, ING USA Annuity and Life Insurance Co. (now undergoing rebranding as Voya Financial) filed an enhanced annuitization offer with the SEC on May 2. This update is also a waiver of the waiting period for contracts with a minimum guaranteed income benefit rider.

The filing is supposed to become effective on July 21.

It's different from offers made by other former variable annuity giants in that it's not an offer to ramp up clients' account value in exchange for them dropping the living benefit — which they may have wanted to use at some point — and the annuity contract altogether.

Instead, clients who take the offer will accelerate the income benefits they had originally hoped to receive and they'll receive an increase to their benefit base by a certain percentage. There's normally a 10-year waiting period for clients to receive their income benefit, and this offer waives it.

Clients who don't take the offer will also have their 10-year wait period waived, but they won't receive the enhancement to their benefit base.

“This is a good solution and part of the reason why is that you're offering people the same thing they bought,” said Tamiko Toland, managing director of retirement income consulting at Strategic Insight. “It doesn't take away your regular [guaranteed minimum income benefit]; you can take it sooner. It's more of a win-win.”

In another first quarter development, The Principal Financial Group filed an exchange offer with the SEC on Dec. 31, 2013 — making it available on Jan. 20 of this year. This offer allows owners of old Principal Investment Plus VA contracts to swap for a new version of the contract, subject to a guaranteed minimum withdrawal benefit exchange offer.

Those who agree to the swap will have their investment options under the old contract terminated and then transferred to the new contract. If clients elect the Principal Income Builder 3 or Principal Income Builder 10 riders, they'll be subject to a more limited menu of investments.

Indeed, some companies are becoming a little more generous. Transamerica Life Insurance Co. filed with the SEC a rate sheet featuring withdrawal percentages for clients who purchase the Transamerica Retirement Income Plus VA between March 17 and June 30. The growth percentage is at 5% but clients who are between ages 65 and 79 can withdraw as much as 6% on the single life version of the feature.

“When was the last time a withdrawal rate was at 6% for age 65?” asked Mr. McCarthy. “It's got to be before the recession.”

Meanwhile, Forethought Financial Group, which purchased its new annuity business from The Hartford Financial Group, is putting those new capabilities to use. Forethought has filed its Daily 6 and Daily +4 living benefit features. Daily 6 offers a lifetime annual payment based on a 6% deferral bonus or a market-based step-up, whichever is greater. Daily +4, on the other hand, provides a lifetime annual payment based on a 4% deferral bonus and a market-based step-up.

Finally, American International Group's SunAmerica unit filed in March to bump its Polaris Income Builder benefit's maximum annual withdrawal percentage to 5.2% for clients age 65 and older with the single life version of the rider. That update is applicable for contracts issued on or after March 10.

“Some of the benefit levels are going back up and becoming more generous,” noted Mr. McCarthy.