VA changes at major insurers are afoot, executives say

Just when it seemed that the variable annuity industry couldn't handle more change, major sellers MetLife Inc. and Prudential Financial Inc. expect to roll out product updates this month, while The Hartford Financial Services Group Inc. is looking to reduce further its VA book of business. Both life insurers hosted earnings conference calls Thursday morning to discuss second-quarter results, which improved from a year earlier. MetLife brought in $2.26 billion in net income, up from $1.07 billion a year earlier, while Prudential's financial services units reported net income of $2.20 billion, up from $779 million. Moderating VA volume remains on the agenda at both insurers, after the companies picked up considerable volume last year amid tumult in the industry. VA sales fell to $4.6 billion at MetLife, a decrease of 34% from a year earlier, while gross annuity sales were $5.3 billion at Prudential, up from $4.5 billion a year earlier. The most recent quarter's flows “were slightly higher than what we wanted, but not higher than we expected,” said Charles F. Lowrey, chief operating officer of Prudential's U.S. businesses. A year ago, the insurer averaged about $5 billion in sales per quarter, he said. Further steps in the form of product changes are ahead for the insurers this month, according to executives on the call. MetLife, for instance, has updated its withdrawal rate so that withdrawals made before the policy's fifth anniversary decrease to 4.5%, from 5%. “We're changing more features on our variable annuities and altering our dollar-for-dollar [withdrawal] feature,” said Bill Wheeler, president of the Americas at MetLife. That change will be implemented this month, he said. Changes are also afoot at Prudential, which is preparing to launch its Highest Daily Lifetime Income Benefit 2.0 in the coming weeks. This latest version includes a fee increase, bringing the single-life version of HD 2.0 to 100 basis points and 110 basis points on the spousal version of the rider. Both were previously 95 basis points. The minimum issue age on HD 2.0 has also been raised to 50, from 45. At Hartford, much of the talk around VAs focused on the next steps the insurer will take with its legacy variable annuity block. The company had a loss of $101 million in the second quarter, compared with a profit of $33 million a year earlier. Charges tied to its VA block hampered results. Hartford faced a deferred-acquisition-cost unlock expense of $127 million, compared with $17 million a year earlier. Analysts asked about Hartford's moves to continue isolating and reducing its block of runoff VA business, which is headed by Beth Bombara, president of life runoff. “Under Beth's leadership, our goal is to reduce the liabilities and the risk of the annuity book, and — if the opportunities present themselves — to isolate or separate it,” said Liam McGee, Hartford's chief executive. The company is mulling over a number of ideas to reduce that liability, he said. An analyst asked whether Hartford might offer lump sums to legacy clients in exchange for surrendering their variable annuity and living benefit. A similar concept, which gives clients a bump in account value if they drop the benefit, is being offered by Axa Equitable Life Insurance Co. on a death benefit feature and Transamerica Life Insurance Co. on a living benefit guarantee. “We're exploring every possible area for accelerating VA runoff, including that concept,” Mr. McGee said. “Guarantees differ from insurer to insurer, and there is no evidence yet that consumers will make the trade.” Mr. McGee noted that it is one of many possibilities Hartford is weighing. “We are determined to reduce our book as quickly as we can,” he said.