Latest product features 4% withdrawal rates; can advisers do better on their own?
MetLife Inc. has reined in its variable annuity income benefits once again, filing for a product that will provide for 4% withdrawals.
In a Jan. 15 product filing with the Securities and Exchange Commission, the insurer — which was the third-largest issuer of VAs in terms of new sales last year — mentioned its Guaranteed Minimum Income Benefit Max V, a product feature that will increase clients' benefit base by 4% each year and permit 4% dollar-for-dollar income withdrawals.
The filing also mentions the Enhanced Death Benefit Max V, which offers a 4% annual increase rate. MetLife's latest product prior to this release was the GMIB Max IV, which permits 5% withdrawals.
The two new products will be available Feb. 4.
How advisers react to them remains to be seen. As companies have adjusted their products due to low interest rates, reps have drawn the line for roll-ups and withdrawals at 5%. Below that level, the value proposition of the VA, especially compared with its cost, greatly diminishes, advisers said.
“You would have to make a case for how much value is being added to this versus systematic withdrawals [from a portfolio],” said John McCarthy, product manager, adviser software and insurance solutions, at Morningstar Inc. “It's a statement that insurance carriers are in a position where it's extremely difficult to offer a benefit based on the current interest rate environment and capital requirements.”
The withdrawal and roll-up rates appear to have hit a floor for now, but don't expect features to rise even if interest rates increase.
MetLife, along with Jackson National Life Insurance Co. and Prudential Financial Inc., have dominated the variable annuities market in the wake of the 2008 financial crisis as competitors have fled the market and brokers have run to safety. Together, all three companies account for approximately 45% of the VA market share, according to Morningstar. That gives the insurer considerable pricing clout.
“Going forward in the industry, the lifetime-income guarantees of the future are not going to look like the lifetime-income guarantees of the past,” said Elizabeth Forget, senior vice president of MetLife Retail Annuities. “Some advisers and wholesalers ask, 'Where do rates have to go so we can go back to 6%?' Guess what, guys? I don't think we're going back there.”
“I believe that with the current design we have, 4% is probably as low as we're going to go,” Ms. Forget added.
Even with the reduced income levels, Ms. Forget noted that the variable annuity will still have a place in clients' retirement planning. More product development is ahead for the insurer. “We and our competitors are doing a lot of product innovation to come at this guaranteed-income problem that consumers face from a couple of different angles,” she said. “These [annuities] still play a role in retirement planning.”
Ms. Forget said that advisers should expect to see MetLife release a new product in May. “We see it as an evolution,” she added. “We are in it for the long term, but we have to reinvent ourselves to shape the market as it goes forward.”
Certainly, the product change will help executives at MetLife achieve their goal to cut variable annuity sales by more than 40%. The company aims to sell $10 billion to $11 billion in VAs this year. “This plan is consistent with our strategy to shift the business mix toward less-capital-intensive products,” John C.R. Hele, MetLife's finance chief, said at a December investors' conference.
The plan to dial back on the business fits in with the company's desire to reduce its exposure to low interest rates and the long-term guarantees tied to the variable annuities block, William J. Wheeler, president of MetLife's Americas business, said at the same conference.
“It doesn't mean we're getting out of the business; it means that we're lessening our exposure to it,” he said. “And that's consistent with the strategy we outlined earlier this year.”
