It's debatable if the fiduciary standard is 'higher' than suitability. But the better question might be, who's holding the bar?
By Linda Koco
Jackson National Life has once again put a year-end lid on certain types of variable annuity business that it will accept.
The action might be a jolt to variable annuity producers who have been thinking that the days of variable annuity suspensions ended with the recovering economy. Some might wonder if the action signals the beginning of a new round of curtailments in the broader variable annuity marketplace.
It’s true that the industry is still in a “tender recovery” period from the economic struggles of the post-recession years. However, the Jackson action looks more like risk management process than a carrier joining up with a herd that is making a mad dash for the exit.
Here is why: The move is a temporary measure, designed to last no more than seven weeks. This doesn’t mean that advisors and clients will like it. But it does mean that an end to the limit period is in sight, making it easier for advisors and clients to plan around.
In addition, Jackson is saying it is committed to the business and wants to grow it within certain parameters. Advisors are well aware that intentions may not see fruition, but the messages are being made publicly, so it’s likely the statements are being made with all seriousness. (Not incidentally, a few other carriers have made somewhat similar statements lately. It could be a new bottom is forming on carrier exits, with carriers that are in the business firming up their resolve.)
The Jackson limits
The Jackson limits go this way: The carrier will not accept new 1035 exchange business or qualified transfers of assets for variable annuities that offer optional guaranteed benefits between Oct. 25 and Dec. 15 of this year. However, the company plans to resume accepting such business on Dec. 16, 2013.
The reason given in a company statement is to “manage sales volumes.”
In the same statement, the insurer indicated it intends to stay in the annuity market, both variable and fixed.
For instance, it said it will continue to accept new 1035 exchange business or qualified transfers of assets for Jackson’s Elite Access variable annuity as well as for its fixed or indexed annuity products. (The Elite Access product offers traditional and alternative asset investment options as well as risk management and tactical management strategies, but is not designed for clients seeking guaranteed lifetime benefits.)
Mike Wells, Jackson president and chief executive officer, underscored the point, stating that “the variable annuity market remains attractive for Jackson and we are committed to writing new business within our overall appetite for risk.”
Securian is another carrier that has affirmed continued interest in staying in the market.
Dan Kruse, second vice president and individual annuity actuary at Securian, recently said that his company’s risk-managed approach to the variable annuity market is “designed for longevity,” and that “we’re here to stay with the goal of providing products that meet a wide range of consumer needs.”
The comment came in a mid-October press release the company issued when debuting an optional suite of living benefits options for its MultiOption variable annuities.
Another example came during a panel discussion at LIMRA’s annual meeting in mid-October. Panelist John Kennedy of Lincoln Financial Distributors pointed out that his company has been one of the benefactors of some variable annuity companies that pulled back a little bit over the past couple of years.
His firm “sold through the market” in 2007 and 2008, he said, and that has created “a great block of business.”
Going forward, “we want to continue to grow this business,” said Kennedy, who is senior vice president and head of retirement distribution solutions in the Radnor, Pa., office. To that end, he said the company has been “very consistent” in its products and approaches between distribution and manufacturing.
However, Kennedy didn’t mince words about what the variable annuity business needs in order to thrive. He said he would like to see 10 to 15 more companies in the business — companies that his firm can compete against. “I don’t want to be the last VA (carrier) standing.”
It’s not good for the industry if the business concentrates around just five or six carriers, Kennedy added. He allowed that the industry will need a better interest rate environment so it can improve products and solutions, but he said it also needs more companies in the business.
The leading carrier
The recent Jackson move is getting attention largely because of the company’s position as variable annuity sales leader.
In the first six months, Jackson ranked in first place in Morningstar‘s list of top variable annuity carriers by sales. The company’s new sales totaled $10.3 billion for the period, up from $9.6 billion in the first six months of last year. In second quarter 2013 alone, Jackson’s retail variable annuity sales were $5.7 billion, and the company had a 15.5 percent market share (which Morningstar said was up 25.2 percent over first quarter).
Those sales numbers are what put Jackson in the lead and they are also a driver for the year-end limits. As Wells put it, “strong demand” for the Jackson variable annuity products “compelled” the carrier to manage new business volumes (via the year-end limits).
It’s part of the carrier’s risk management program, he indicated in the company statement, noting that the goals is to “balance guaranteed and non-guaranteed business to avoid a concentration of exposure to any single product type in any one year.”
This is not the first time Jackson has put a temporary limit on accepting certain variable annuity business. Last year, it stopped accepting new business in the same areas (new 1035s and the qualified transfers, as above) from Nov. 13, 2012, through Dec. 14, 2012. The projected resume date that year was Dec. 15, 2012. The company ended the year with variable annuity sales totaling $19.7 billion, up from $17.5 billion the year before.
Other carriers that remain in the variable annuity market are not ruling out the possibility that they may also take steps to impose limits.
For example, when announcing its new lifetime income options, Securian said that it reserves “the right to limit or discontinue acceptance of future purchase payments” after policy issue. This may limit the ability to increase contract value though additional purchase payments, and if the contract has a living benefit option elected, “may also limit the ability to increase the value used to calculate the optional benefit,” the company said in the announcement.
Variable annuity insurers have for years reserved the right to make specified policy changes after policy issue, and they have routinely included language to that effect in the policy prospectus and in many marketing materials. For that reason, most variable annuity advisors will not be surprised at the language.
What is surprising, though, is that this carrier included the language in the disclosure section of a new product press release as well as in the typical sales and product documents. A few other variable annuity carriers have done something similar in the last year or so, but before that, it just didn’t happen. That this is happening now bears witness to the importance that some carriers are placing on providing wider disclosure that such changes can occur.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].
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