Axa Equitable Life Insurance Co. and
MetLife Inc. have enacted limits to the amount that some customers can add to their variable annuities.
In both cases, the limitations apply to customers who have already purchased the variable annuities and would like to add more money to their accounts, which clients may be inclined to do if their investments perform well or if they'd like to protect more of their assets under a benefit rider.
Further, advisers typically make a commission when clients add to their VAs, so curbing new contributions keeps them from receiving the additional compensation.
However, the move is a positive one for insurers, who are limiting their exposure to rough equity markets and low interest rates. Extreme volatility raises costs for insurers when they hedge for their variable annuity living benefits, making it more costly for companies to continue offering rich guarantees.
In a Jan. 3 letter, Axa notified clients that it will stop accepting additional contributions to its Accumulator Elite rollover individual retirement account variable annuity contract as of Feb. 17. The limitations are applicable to investors who bought their Accumulator variable annuity prior to June 2009.
Any payments received after Feb. 17 will be returned to clients, according to the letter.
“This action is in light of the current economic environment, including the challenges of persistent low interest rates and high levels of market volatility,” said Discretion Winter, spokeswoman for Axa. “These conditions make it financially imprudent to continue to accept new contributions on the favorable terms that were developed years ago in the context of a much different economic environment.”
MetLife, meanwhile, filed with the Securities and Exchange Commission in December to limit client additions to variable annuities with the Guaranteed Minimum Income Benefit Max, which offered a 6% benefit increase and withdrawal percentage, and its updated version, the GMIB Max II, which offered a 5.5% benefit.
Both products are no longer for sale.
MetLife spokeswoman Holly Sheffer Liapis referred to comments made by chief executive Steve Kandarian on a third-quarter conference call last October. “While the market and our sales grew substantially in the third quarter, we are taking a proactive approach to managing the growth of our variable annuity business,” he had said.
According to
MetLife's SEC filings, customers whose paperwork for the VA with GMIB Max rider was received by
MetLife after Sept. 30 won't be able to add contributions after Feb. 24.
Meanwhile, clients whose paperwork for a new purchase of the
MetLife VA and GMIB Max II was received by
MetLife after Dec. 2 will be unable to make further contributions to the annuity after April 27, according to the filing.
Clients buying the
MetLife VA during those periods were aware upfront that their contributions would be limited, advisers said.
Still, the investors faced some inconvenience since they had to come up with most of the money for the VA purchase fairly quickly.
“I used to tell people to put in $10,000 so that they have the contract and then they could always add, but now the story is to put in as much as you can because you can't add to it,” said Maxine Weiner, a rep with Walnut Street Securities Inc., a broker-dealer owned by
MetLife. “You have to bring more money upfront, but that's just what you have to do.”
