The variable annuity industry continues to shudder as companies become even more cautious in their offerings.
Axa Equitable Life Insurance Co. last month notified clients that it will drop 26 investment options from its Accumulator variable annuity contract, shifting dollars to less risky fund choices starting May 20. Eleven new options will take their place
Many of the replacement funds feature a volatility management strategy, according to a client letter obtained by InvestmentNews. Funds in an option that is set for replacement will be shifted to the new investment option at relative net asset value. Future contributions that are heading toward one of the “old” fund options also will be slotted into the new fund.
About 500,000 policies will be affected by the change, which will apply to clients who bought the Accumulator Series 9.0 and earlier versions of the contract, according to Discretion Winter, a spokeswoman at Axa.
Funds that will be replaced encompass equity and fixed-income options. Both the Multimanager Mid Cap Growth fund and the EQ/Pimco Ultra Short bond, for instance, will be dropped. The former will be replaced with the Axa Tactical Manager 400, a fund that changes its equity exposure according to the volatility index, and the latter will be replaced by the EQ/
AllianceBernstein Short Duration Government Bond fund.
Changes are also afoot for up-and-coming variable annuity seller Ohio National Life Insurance Co. The carrier recently filed a plan with the Securities and Exchange Commission to change the crediting rate on its Guaranteed Lifetime Withdrawal Benefit Plus to 6%, starting March 25. For contracts applied for between Dec. 3, 2012, and March 25, 2013, the rate was 7%, and prior to Dec. 3, it was 8%.
The pullback among VA sellers is starting to have an impact on inflows. The industry experienced a net outflow of $598.5 million during the fourth quarter, according to Morningstar Inc. — the first net outflow since the research firm began tracking VA net flow in 2001. Frank O'Connor, product manager at Morningstar's annuity research center, pointed to distributions from large group variable annuity contracts in 403(b) plans.
Some of that outflow, however, is tied to companies such as
Transamerica Life Insurance Co. and AXA offering buyouts and others exiting the business, Mr. O'Connor said. Either way, clients are taking their money and running someplace else — they're not buying more VAs.
“It's interesting that we're not necessarily seeing a corresponding inflow,” Mr. O'Connor said. “If it were exchanged to other variable annuity contracts, you'd see that as sales and there wouldn't be as much of an impact on the net flow.”
The money is likely being funneled into a number of different products, including indexed annuities, which sold $34.2 billion in 2012, up 3.7% from the previous year, according to Beacon Research Publications Inc.
The insurance industry's desire to back off of variable annuities because of their long-term liabilities and their sensitivity to low interest rates and high market volatility is encouraging some companies to consider other product innovations.
For instance, Sammons Retirement Solutions Inc. will be launching LiveWell Plus, a mutual fund individual retirement account that credits a 3% account bonus on contributions made in the first six months.
While clients appreciate the concept of lifetime income, the next realm of product innovation won't necessarily be in annuities, noted Ann Hughes, vice president and head of business and sales development at Sammons. Rather, mutual funds will be the next area of creativity.
“Annuities have their place, but the industry hasn't really grown in the last few years,” she said, noting that it's always the same group of advisers who gravitate toward annuities. “Almost every adviser has mutual funds as part of their practice. They're mainstream. The opportunity is so much greater.”
