Orange You Glad To Be ING? “Lifepay Plus” Rider Fuels Industry-Leading VA Sales

November 2008

NEWS; Pg. 9 Vol. 15 No. 11

1195 words

Orange You Glad To Be ING? "LifePay Plus" rider fuels industry-leading VA sales.

Alan Lavine

ING, whose banking ads blaze with the color orange and whose retirement ads show typical Americans lugging unwieldy seven-digit numbers under their arms, has had better luck in this year's tough variable annuity market than any of its rivals.

The Dutch conglomerate's U.S. unit ranked first in VA sales in the first two quarters of 2008, with sales of $4.03 billion in Q1 and $7.95 billion in Q2. In the last quarter of 2007, under more favorable market conditions, ING ranked fourth, with $13.57 billion.

Valerie Brown, who succeeded Harry Stout as president of ING retail annuities last May, doesn't think luck has anything to do with her firm's success. She cites savvy product design, marketing, sales support and value-added wholesaler services for the league-leading sales.

Most of all, she credits the firm's new lifetime withdrawal benefit. "LifePay Plus is a product innovator," she said. "It is a more flexible and transparent product that is extremely well accepted in the marketplace."

An optional rider with ING's Legacy variable annuity, LifePay Plus provides a guaranteed 7% annual minimum increase to the withdrawal base during the first 10 years of the contract. Policyholders can take withdrawals during the first 10 years without forfeiting the entire roll-up.

The rider also includes an automatic quarterly ratchet during both the accumulation and withdrawal phase. Plus, there is a 7% annual step-up in the account value during the withdrawal phase and a new maximum annual withdrawal rate of 6% for people at least 70 years old. The annual cost of this rider has been 75 basis points of the guaranteed withdrawal base for individuals and 95 basis points for joint coverage.

Overall, ING's strategy is to focus on expansion, capitalize on changing customer preferences and build on the insurer's business capabilities. The ING Group acquired Aetna Financial Services in 2000. And this year, it paid $900 million for CitiStreet, a retirement plan business, jointly owned by Citigroup and State Street.

The insurer is focusing on high-growth markets and building both bank and broker/dealer investment platforms. It wants to provide retail customers with products they need during their lives to grow savings, mange investments and prepare for retirement.

Brown admits that near-term, VA sales have dropped off due to the financial crisis. But the insurance company ultimately should benefit because financial advisors and their clients will be more receptive to variable annuity guaranteed lifetime withdrawal benefits.

"There is no question [industry-wide variable annuity] sales are slumping," she said. "Consumers are holding on to their money and are nervous. We are positioned very well because this marketplace demonstrates the value of these benefit guarantees."

In addition to ING's unique product features, she said value-added wholesale productivity has increased 24% since 2005. The wholesalers focus on the need for income guarantees and the need to integrate variable annuities into a client's portfolio, based on retirement cash flow needs.

"We had income symposiums to help reps and provided advance sales specialists to help with trusts,"

she said. "Our continuing education program was rated No. 1 by Horsesmouth," a New York-based performance improvement publication for financial advisors.

In 2007, ING registered sales of $10.8 billion, thanks in part to its financial advisor education and training programs. The insurer has 140 wholesalers catering to all distribution channels.

ING's "Bring it to the Branch" education program for banks and wirehouses discusses best practice tactics. It also talks about how variable annuities and principal benefits can fit in with a client's financial plan and income needs.

On the independent channel side, ING hosts 400 meetings nationwide for advisors. The insurer recruits industry speakers to discuss best practice management, regulations and uses of annuities in financial planning.

Brown said that the acquisition of Citigroup's retirement business brought ING's defined contribution assets to $351 billion-the nation's third largest in that category. ING is now providing guaranteed lifetime withdrawal benefits to 401(k), 403 (b) and 457 defined contribution plans.

"We are providing the benefit and it is evolving slowly, "she said.

Although ING is well positioned to take advantage of the onslaught of people who may want a guaranteed source of retirement income, the insurer and its competitors face trying times. An October 2008 report by Moody's said that while the insurance industry is healthier than most other financial services sectors, it is under pressure.

Laura Bazer, a Moody's vice president, said that the substantial decline in the equity markets and increased volatility will reduce profits, particularly on fee-based business, such as variable annuities.

That's because sub-account values are down and insurers have to beef up reserves and capital to adequately cover guarantees. The increased cost of hedging programs on living benefits also squeezes insurers' profitability. She predicts that earnings from variable annuities could drop as much as 25% over the next year, compared with 2007. She declined to say whether the higher cost of hedging programs will prompt ING to increase either its reserves or its fees.

At this writing, ING had not publicly released its third quarter financial report. But published reports indicate that ING Americas has limited exposure to the subprime crisis. As of the fourth quarter 2007, ING had total impairments-losses as well as reserves-of about $262 million.

Michel Perreault, ING's chief actuary, stresses that ING Americas has been successfully running a dynamic hedging program since 2000 for all the guaranteed benefits offered under variable annuity contracts. The program's positive results have allowed the company to manage effectively through the September 2001 terrorist attacks, the 2002 bear market and the most recent market turmoil.

"ING U.S. has invested over $50 million in people, systems and software to ensure daily refreshing of our hedge positions, allowing us to quickly respond to market events," Perreault said. "The most recent market volatilities have required more frequent rebalancing of our positions. The costs of doing so, while higher than expected, are easily funded by the substantial diversified earnings from our other U.S. business units."

Although these are challenging times, Brown said that ING is in a strong position. The insurer takes a conservative approach to risk and investment management. The company wants to grow its business through new product designs, such as its recent launch of new investment management platforms. These aid advisors in managing risk and evaluating the placement of guaranteed withdrawal benefits in a client's portfolio.

ING is also on the lookout for acquisitions, which might include the purchase of some of AIG's annuity business. "The biggest challenge at this moment is to make certain we stay focused, nimble in this market and seize opportunities," Brown said. "ING is in a strong position. We have a strong brand. We are very committed to our Legacy [VA] product."

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November 3, 2008