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Retirement Planning > Retirement Investing > Annuity Investing

VA carriers take a breather in Q3

By Maria Wood

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Changes to variable annuity contracts and new filings slowed in the third quarter, dropping to 84 from 182 in the previous quarter and 106 from a year ago, reports Morningstar.

The deceleration is due to two factors, said John McCarthy, product manager, insurance solutions. First, the second quarter is typically a busy time because carriers are required to re-file their prospectuses by May 1. Those changes were further heightened by the persistent low interest environment, which forced carriers to rejigger their products even more, McCarthy noted in an interview.

With not much movement in sight on interest rates for the foreseeable future, carriers have probably made as many adjustments (fee hikes, benefits cuts) as they can to achieve stability. Therefore, they now are taking a wait-and-see stance until interest rates bounce back. “The situation hasn’t changed much in terms of interest rates,” McCarthy said. “They’ve gone up a bit, but not enough to make too much of a dent in the way they offer the benefits.

Nevertheless, several notable changes occurred or are scheduled to take place in the third quarter. In September, AXA Equitable rolled out its buyback offer to owners of certain living benefits for its Accumulator VAs issued between 2004 and 2009. MetLife, Nationwide and Prudential (via a cap) all limited subsequent payments to contracts and benefits. Meanwhile, Hartford set an Oct. 4 deadline for owners of the Director M series to reallocate their investments or face losing the lifetime income rider.

On the new filing front, Allianz launched a new hybrid variable annuity, the Index Advantage. Jackson National re-released the joint versions of its living benefits after a hiatus.

VA sales hit the brakes

As reported by LIMRA, variable annuity sales slumped 2 percent to $35.9 billion in the third quarter compared to a year ago. Year-to-date, VA sales also booked a 2 percent decline to land at $109.6 billion from $102.4 billion.

Again, McCarthy pointed to continued low interest rates as the root cause of that sales skid. Until interest rates improve, carriers are unable to offer benefits generous enough to attract more consumers. The gap between current benefit levels and the 4 percent “safe withdrawal rate” rule of thumb is not wide enough to entice consumers that don’t truly need the guaranteed lifetime income.

“The benefits are at a level right now where the people who really need them are going to purchase them, but I don’t know if you are going to get a lot of incremental sales at the current benefit levels,” McCarthy said.

Moreover, the strategy by some of the major carriers, such as Prudential and MetLife, to deliberately curb VA sales has impacted the total. Other carriers, McCarthy said, have picked up the slack a bit and gained market share, but not enough to overcome the pullback by those bigger names. He also emphasized that 2 percent “is not really a significant” drop-off.

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