In Todays Market, VAs Push Safety
Whats the fashion statement for todays variable annuity design?
If you doubt it, check this out: A review of several products arriving at National Underwriters products desk in recent months shows that many VA insurers have added features to their VAs that aim to heighten the sense of safety that prospective buyers feel about VA investing.
Further, the way VA executives talk about these new features and products shows they are veering towards the bulkhead of predictability. Their comments are awash with references to safety, protection, comfort, security, reassurance, and so on.
The aim, say designers, is to give consumers the confidence to invest in a VA, although the market is volatile.
Some insurers are doing this by offering a new type of living benefit–a return of premium guarantee–with their VAs. This feature guarantees the principal after the owner has had the policy for a number of years.
ING began offering such a feature with its VAs as early as last October. Available for a fee, it guarantees return of principal after 10 years, if certain conditions are met.
“We view this as insurance,” says William Lowe, senior vice president-investment products distribution in INGs Des Moines, Iowa office.
“Insurance?” Thats right, says Lowe, “insurance.”
With todays volatility in the stock market, insurance is not a bad word, he contends. “People know what insurance does,” he explains. “It provides protection against catastrophic loss.”
That is what many buyers are looking for today, he says. This feature will especially appeal to buyers who are afraid their VA investment might go south, he predicts.
When attached to a VA, he says, owners can participate in the equities market, but with the comfort of having underlying guarantees.
“It protects against catastrophic loss (i.e., the loss of principal after several years of VA ownership), the way homeowners insurance protects against catastrophic loss to ones house,” he maintains.
People today can and do relate to that, Lowe says. They dont necessarily want the guarantee to pay off, but they do want “the protection and comfort it provides, over the long term,” in event of a steep market downturn.
A side benefit: “The feature is a way VA insurers can differentiate their products from mutual funds,” he says.
Pacific Life has also responded to investor concerns about potential market losses. Just last month, the Newport Beach, Calif. insurer debuted a “Guaranteed Protection Advantage” rider–a 10-year VA option aimed at helping protect client investments, regardless of market conditions.
Available on any VA contract anniversary for 10 basis points a year, the GPA provides 100% protection of all purchase payments in the first four years. Subsequent payments through year 10 receive protection on a declining schedule. Then, on the 10th anniversary, if the VAs value is less than the amount guaranteed, Pacific Life will make up the difference.
“With this years significant market uncertainties, it became clear that we need to further offer clients safety and guarantees for their investments,” says Dewey Bushaw, senior vice president-sales in Pacifics annuities and mutual funds division.
–Withdrawals in the 10-year period reduce the amount guaranteed.
–Owners must stay 100% invested in any one of five portfolio optimization models, Pacific Lifes asset allocation program, or dollar cost average from a fixed option into a portfolio optimization model for all 10 years. (Owners can switch between models.)