By Linda Koco
The term “suspension” is generating quite a stir in variable annuity circles. Advisors are upset because a couple of big variable annuity carriers—Prudential and Jackson National—are suspending sales of, or deposits into, certain variable annuities, such as those offering guaranteed living benefits.
Other variable annuity carriers are expected to follow, and many have already cut back on features in products they continue to sell.
In general, carriers describe their moves as efforts to protect the interests of existing customers and to ensure that the companies will be able to continue in business—and to meet obligations to customers—for the long-term.
The strain on capital created by today’s prolonged low interest rate environment is the trigger. That strain has made it difficult for insurers to support certain policy guarantees, especially the very popular living benefit guarantees such as the guaranteed lifetime withdrawal benefit and guaranteed minimum income benefit options. Certain of those guarantees were designed for sale in times when interest rates were higher.
Advisors say they understand the economic pressures, but they are not happy with the suspension announcements.
One reason is that advisors who have been selling the suspended products, and clients who have been making purchase payments into suspended variable annuities they already own, must now stop. That can derail, or at least unsettle, existing financial plans.
Aggravating matters is that the suspension notices arrived just a few days before the effective date. That left little time for advisors to complete sales then in process or to advise clients, before the fact, about strategies and alternatives. “Carriers no doubt wanted to avoid a fire-sale market which would further raise profitability concerns,” observes Tom Hegna, president of tomhegna.com, Fountain Hills, Ariz.
Then, there is that word, “suspended.” Advisors say they are not really sure what an annuity suspension means, when it will end, or what impact it will have on their ability to meet client needs going forward.
“The term implies that the products could go live again, but I’m thinking we’ll never see those products again,” laments one registered rep who had had been putting a lot of business through one of the companies with suspensions now in effect. He spoke about his feelings on condition of anonymity. “The word does not represent the issue reasonably,” he contends.
Another rep, who also asked not to be named, says she is not sure about the meaning of suspension. “I took it that the companies will no longer be writing the products. After all, carriers routinely stop writing older versions of products when they bring out a new version. Then again, this could be a temporary measure. I just don’t know.”
The advisor says she plans to check it out with the internal wholesaler before talking to clients about the suspension. “I wouldn’t want to do anything under speculation,” she explains.
No track record
It would help if there were a track record for “suspensions” in the variable annuity world. However, there isn’t one.
“I can’t think of any example from the past where a company has suspended a variable annuity or feature,” says Joan Boros, a Washington attorney who has long worked with variable annuity products. She is of counsel with the Washington law firm of Jorden Burt LLP.
That means that advisors today do not have a history to look back upon for guidance about what will happen next.
Boros thinks it is the rapid growth in sales of variable annuities with living benefit guarantees, combined with the extremely low and prolonged interest rate environment, that spurred carriers to start certain suspensions.