In this seemingly endless season of variable annuity take-backs and retrenchments, yet another insurer is looking to rein in liabilities stemming from existing VA products. This time, Axa Equitable Life Insurance Co. is launching a benefits buyback offer — marking the second such offer from the carrier in less than two years.
Axa posted a filing with the Securities and Exchange Commission on July 1, announcing that it would offer a buyout opportunity for swaths of its clients with Accumulator contracts issued between 2004 and 2009. These offers are set to kick in this September.
For a limited time, the insurer will boost a client's account value if the client agrees to terminate the guaranteed-minimum-income-benefit rider, along with other optional riders. Those riders include death and earnings enhancement benefits.
Features that come with the income benefits include roll-up rates — that is, the rate of growth credited to the benefit base that's used to calculate an income stream — as high as 6.5%.
Clients don't have to take the offer. They can keep their contract and its guaranteed features.
That gentler approach stands in contrast to the tack taken by some other insurers as they look to limit exposure from their VA books of business. The Hartford Financial Services Group Inc. in June began applying a series of new restrictions to existing contracts. Clients with the Lifetime Income Builder rider, for example, were told they had to switch to a number of more conservative investments. The kicker: Clients who don't respond by Oct. 4 could have their rider terminated.
Axa customers who accept the carrier's latest offer no longer will have charges for the guaranteed benefits levied against their account values. They will still have to pay for separate account expenses, however.
When calculating the buyback sum, Axa will weigh the life expectancy of the owner, the current and projected account value, and the current and projected guaranteed benefits. Most clients will receive the greater of two calculations — either 70% of the actuarial valuation of the reserve for the income and death benefits, or two times the guaranteed-minimum-income benefit and the death benefit fee rates (multiplied by the respective benefit base).
The calculation is different for clients who took excessive withdrawals during any of the three contract years ending in 2012 and whose excess withdrawal was at least 25% of the contract's account value. Those clients will get to choose the greater of 25% of the actuarial valuation of the GMIB and death benefit reserve or the GMIB and death benefit fee rates multiplied by the benefit base, according to Axa.
Generally, the closer the current account value is to the value of the benefit, the smaller the offer amount will be, according to the filing.
News of the filing was initially reported by the Retirement Income Journal.
A 2012 offer Axa made for certain VA clients with guaranteed-minimum death benefits fared well and exceeded expectation, according to Discretion Winter, a spokeswoman for the insurer.
“Following the strong contract holder interest in our previous offer, we have decided to make our voluntary program available to a broader customer base,” she said.
The company did not share any numbers on how many clients accepted the previous offer. Broker-dealer executives, however, said the lion's share of clients ended up staying put.
“We advised the brokers not to take them,” said Kraig Lange, first vice president and manager of the insurance department at
Stifel Nicolaus & Co. Inc. “They better have a good reason to do it. If they pull money from a buyout offer, they may not put it in another variable annuity with a living benefit. It has to be a complete change in investment objectives.”
He added that the firm “didn't see a lot of activity” when it came to the first wave of Axa buyouts.
“The old contracts have better benefits than the new ones,” Mr. Lange said. “We're not happy about many of these [buyout] offers, and I'm concerned about suitability.”
