Last week, Hartford Life Insurance Co. became the latest carrier to offer a portion of its variable annuity (VA) holders a voluntary buyout. For those owners who accept, all riders, including the lifetime income guarantee, will be voided. In exchange, they can surrender their contract and receive a premium over their current account value.
The move comes not long after Hartford decided to exit the life and variable annuity business to concentrate on property and casualty insurance and other lines of business. Currently, its variable annuity book is in runoff.
“We continue to examine other options to accelerate the runoff of the U.S. and international annuities. With any actions we take, we will continue to honor our obligations to contract holders,” said CEO Liam E. McGee in a conference call last Friday.
According to McGee, the option will be offered to VA holders that collectively account for about 15 percent of the company’s GMWB (guaranteed minimum withdrawal benefits) book in the U.S. in terms of account value, “but more importantly, nearly 45 percent of the U.S. GMWB net amount at risk.”
A spokesperson for Hartford had no estimate regarding how many owners it expects to take the offer.
In recent months, a number of VA providers have made similar proposals. Transamerica offered current holders of several of its VAs with guaranteed lifetime income benefits the option to drop those riders in lieu of an enhanced full cash surrender value. AXA Equitable gave owners of its Accumulator® variable annuity the choice to trade the guaranteed minimum death benefit for a higher account value. And Prudential informed owners of several of its annuities that they can no longer make additional purchase payments as of September 14.
All these moves can be traced back to the ongoing and seemingly never-ending low interest rate environment that makes hedging and paying for those lifetime income guarantees increasingly difficult for carriers.
“The biggest hurdle right now for these carriers is the pricing of these guarantees and that’s based on interest rates and volatility in the marketplace,” said Kevin Loffredi, vice president of annuity solutions at Morningstar. “We’ll see a turnaround if we see rates come back up and the retooling of these guarantees will hopefully be more positive than negative. The insurance companies are trying to be responsible and not offer guarantees they can’t stand behind.
“This may seem like a lot of extra work for investors and their reps but it’s part of the marketplace we’re in and everyone should try to understand that,” Loffredi said.
In light of the structural changes Hartford has undertaken, Loffredi said he wasn’t surprised by the company’s buyout bid. If owners agree to the offer, Hartford can free up dollars now in reserve and bolster its balance sheet, he noted.
An offer they can refuse?