Pacific Life Launches GMWB Rider on Variable Annuities

With volatility in the financial markets contributing to an 18 percent drop in first-quarter sales of variable annuities, dropping the product to its lowest market share in 20 years, VAs need all the help they can get.

For VA contract holders, those fluctuating account values are enough to give them heartburn, but Pacific Life Insurance hopes a new income rider will soothe worries by promising guaranteed income no matter how markets perform.

The guaranteed minimum withdrawal benefit (GMWB) rider, marketed as Enhanced Income Select, will appeal to retirees looking for more income flexibility from their VA contracts, said Christine Tucker, vice president of marketing for Pacific Life’s Retirement Solutions Division.

"Maximizing guaranteed income now, in a client's early retirement years, is a growing priority for a large number of retirees," as retiring baby boomers embark on a more flexible approach to retirement than their predecessors, Tucker said.

A retiree may take a year off, only to rejoin the workforce part time six months later. Or, a retiree may take a three-year sabbatical before coming back once more as a volunteer, if only to collect full or partial health benefits.

“Retirees want more flexibility and want to know that they can get a guaranteed paycheck,” Tucker said.

Rider Comes with Reset Features

Guaranteed withdrawals begin as early as 59.5 years old and a reset feature allows contract holders to raise withdrawal amounts.

Contract holders who take their first withdrawal at 70 years old or older can earn as much as 7.5 percent of the contract’s protected payment base in the single life version and as much as 7 percent in the joint life version, the company said.

So a $100,000 VA contract would return $7,500 annually to the policyholder, or about $625 a month.

Guaranteed lifetime income percentage with a contract value of zero is 3 percent across all age bands, the Newport Beach, Calif.-based company said.

The rider, which costs extra, is available on nearly all the company’s VA products and is being sold through independent broker-dealers and wirehouses.

“Variable annuities have a place for the right client at the right time for retirement income solutions,” Tucker said. “It’s another way of helping clients generating income that meet their needs. The GMWB is extra security with so much volatility now.”

Pacific Life typically doesn’t launch more than one or two riders a year depending on market conditions and interest rates, she said.

The company sold $611.2 million worth of individual variable annuities in the first quarter, according to LIMRA Secure Retirement Institute.

Tough Times for VAs

VAs have had a tough run of late as investors flee the market for the safer confines of fixed annuity contracts.

First-quarter VA sales dropped 18 percent to $26.6 billion, their lowest level since 2001, according to LIMRA SRI, and declines were industrywide with 19 of the top 20 life insurers reporting decreases.

De-risking has been the key word for the industry since the financial crisis of 2008. Amid volatile markets, some writers cut policyholder benefits to reduce their own financial exposure while others completely exited the market.

Furthermore, new Department of Labor fiduciary rule regulations will go into effect in April 2017 and add a hefty disclosure burden to VA sales.

VA sales are forecast to drop as much as 20 percent in 2016 and another 25 to 30 percent in 2017 once the new regulations kick in, LIMRA SRI’s U.S. Retail Annuity Sales Survey found.

“We are seeing a significant shift in the annuity market,” said Todd Giesing, assistant research director of LIMRA SRI, in a news release.

“In the first quarter, variable annuity sales had a 45 percent market share, compared with a 60 percent market share just a year ago,” he said. “We have to go back 20 years — to 1995 — to find when the variable annuity market share was 45 percent or lower.”

In 2015, U.S. individual VA sales dropped to $133 billion from $140 billion in 2014, and individual fixed annuity sales rose to $104 billion from $97 billion in 2014, according to LIMRA SRI data.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.