Impaled rider: MetLife could slash popular VA benefit yet again

$8.6B in 3Q is another record breaker for variable annuities; insurer's already pared back GMIB Max twice

Following a third-quarter surge in variable annuity sales and a recent pullback in features, MetLife Inc.’s CEO said the insurer will take further action if demand climbs higher than expected.
The insurer wrapped up its third quarter with $8.6 billion in variable annuity sales, reflecting an 84% bump up from the comparable period in 2010. That smashed its previous record of $6.97 billion in the second quarter, according to FBR Capital Markets & Co.
Much of the activity had been driven by sales of the carrier’s Guaranteed Minimum Income Benefit Max living-benefits rider, which has prompted MetLife to reduce the payout twice since launching the product in May.
Further changes could be ahead if sales don’t slack off.
“We’re closely monitoring sales, and if they rise above plan, there are steps we can and will take to bring sales in line,” said MetLife chief executive Steve Kandarian on an earnings call this morning.
The GMIB Max, first released in May, provided a 6% income benefit and quickly became a favorite of advisers. VA sales with the GMIB Max accounted for two-thirds of the carrier’s variable annuity business during the third quarter, according to Bill Mullaney, president of MetLife’s U.S. business.
But the insurer immediately took steps to replace the product with a new version that would reduce the income withdrawal to 5.5%. This month, Met filed a third version of the benefit, dubbed the GMIB Max III, with an income benefit of 5%.
That product change will take effect for new VA sales in the first week of January.
The third-quarter rise in variable annuity sales had been influenced by advisers’ fire sale of the 6% benefit before its closure. That offering was still selling through the early weeks of October, according to Mr. Mullaney.

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He believes there could be a fire sale of the 5.5% benefit, too, but nonetheless expects fourth-quarter VA sales to come in around $7 billion to $7.5 billion. Once the 5% benefit becomes available, he predicts sales in the first quarter of 2012 to slide to about $5 billion.
Performance in the VA block was hurt by the third quarter’s market volatility, but some of the impact was blunted by the insurer’s hedging strategies.
“The cost to hedge the overall book was slightly higher than the fee we charged for the hedges,” Mr. Mullaney said. “If the hedging costs don’t come back in line, we’d take some steps to adjust fees.”