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Portfolio > Economy & Markets > Fixed Income

Carriers charge ahead with VA changes in Q2

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Carriers continued to tinker with variable annuity contracts in the second quarter. According to a report from Morningstar, variable annuity (VA) carriers filed 182 changes in Q2, up from 97 in the first quarter and 168 in the same quarter a year earlier.

It comes as no surprise that Morningstar attributes this flurry of changes to protracted low interest rates that impede any chance of raising benefit levels. The firm characterizes the majority of changes as “low impact.” A deeper look into the changes highlighted in the Morningstar report finds that several involved fee hikes, benefit reductions in the form of lower lifetime withdrawal percentages and more sub-account options that veer toward lower volatility. Several carriers also tweaked the age bands on the lifetime withdrawal benefit.

For example, Jackson National raised the fee on the Lifeguard Freedom 6 Net lifetime withdrawal benefit by 0.15 percent, and reduced the withdrawal percentages for age bands starting at 75 and 81 by 0.5 percent and 1 percent, respectively.

Yet there were several significant moves announced by carriers, mostly with the aim of reducing the carriers’ risk burden.

Hartford, for one, carried on with its departure from the VA market. In May, it closed a number of contracts in the Personal Retirement Manager and Leaders IV series of products. By doing so, Hartford has no remaining Hartford contracts open, Morningstar reports.

In the same month, Hartford filed a change that requires certain contract owners with the Lifetime Income Builder rider to reshuffle their investments by Oct. 4 or lose the living benefit. The reallocation, which affects selected owners of the Director M lineup, mandates that policyholders place a minimum of 40 percent of assets in fixed income and a risk-based asset allocation model. That follows last quarter’s cash buyout offer covering the same contracts and benefits.

AXA Equitable made similar moves in the quarter. It closed the Retirement Cornerstone 12.0 series, which leaves the 13.0 series as the latest Retirement Cornerstone line open.

Further, AXA filed paperwork in July with the SEC to commence a buyback offer of living benefit riders on its Accumulator series of contracts issued from 2004 to 2009. Slated to be executed this month, the offer asks owners to voluntarily give up either their lifetime GMWB rider, enhanced earnings rider or other death benefit in exchange for a credit to their account value.

There were some new products and features introduced in Q2 as well. In July, Allianz released its new GMAB (guaranteed minimum accumulation benefit) named Investment Protector. For 1.3 percent, the benefit guarantees principal after a 10-year period. The benefit has a step up that is the greater of the account value or 80 percent of the HAV (highest anniversary value). In addition, Allianz intends to bump up its fee by 0.35 percent on its Income Protector series of lifetime GMWBs.

Meanwhile, Principal introduced a variable annuity, Principal Lifetime Income Solutions, on Aug. 1. The fee is 1.4 percent and the contract carries an existing lifetime GMWB with a 5 percent withdrawal rate for a 65-year-old (4.5 percent for joint life). There is an HAV step up and a 5 percent fixed annual step up. The rider fee is 0.95 percent and the contract offers four low-cost, diversified sub-accounts.

Other notable changes include:

  • Ohio National issued a new lifetime withdrawal benefit, GLWB Preferred IS, that offers a 5.5 percent lifetime guarantee (5 percent joint life version), which, if the account balance drops to zero, could switch to 3 percent to 9 percent based on the U.S. Treasury rate. The benefit carries two step ups; a HAV and a 7 percent fixed bump up for 15 years. The fee is 0.95 percent (1.25 percent joint).
  • Transamerica was perhaps the most active carrier with an update/re-issue of 39 new contracts (including New York versions). The VA lineups for Axiom, Members, Advisors Access, Income Access, Partners, Principium, Retirement Income Plus, TA Variable Annuity were all revised. The main changes were a new series of death benefits, updated investment options and elimination of the initial payment guarantee and the fixed life annuitization option. The living benefits remain the same.
  • Transamerica also issued a new contract, the Retirement Income Plus, with a new living benefit that offers a 5.5 percent lifetime withdrawal for a 65-year-old (single; 5 percent joint); a HAV step up as well as a 5 percent fixed step up. There are six conservative-oriented investment options. The contract fee is 1.3 percent and the single life version of the GLWB is 1.2 percent.

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