Executive Summary

    Status Quo for the VA Industry

• First quarter, 2010:
  • The pace of filings increased over Q4 2010. Carriers filed over 140 changes this quarter, compared to just 37 last quarter. Year over year, filings grew 4% compared to the 1st quarter of 2009. But while the overall number of changes jumped, the vast majority of changes were minor. We saw fee increases, tweaks to benefits, and the removal of riders and contracts. None of the changes pushed the envelope when it comes to product development.
  • Overall, benefit levels remain pared back, with no increases to withdrawal rates or step ups after the paring down from the last 15 months. The product development pendulum has yet to swing back toward more generous benefits and the accompanying increased exposure on the part of insurers.
  • The number of new contracts was 26, compared to 7 last quarter. Prudential accounted for a large portion of those new contracts, as it created a new VA chassis and a new fee structure with its Premier Retirement series. The firm’s goal appears to be to consolidate contracts and clean house. Fees on the new contracts went down slightly (roughly 10 bps) but the CDSC percentages increased. The benefit line-up remained unchanged on the new series.
  • Product release of note: AXA released its Retirement Cornerstone product. The contract has a unique “two bucket” approach. The first bucket is made up of non-guaranteed sub-accounts exposed to the equity markets. The second bucket is made up of guaranteed subaccounts that provide lifetime withdrawals. The owner elects when to fund these guaranteed sub-accounts. The guaranteed withdrawal percentage is based on recent average interest rates of the ten-year U.S. Treasury note plus 1% (minimum withdrawals of 4% and maximum of 8%). At age 95 or when the benefit base reaches zero, the withdrawals convert to lifetime annual income payments (annuitization) offering 4% payments (single life) or 3.25% payments (joint life) up to age 85 (and higher payments for older ages). Interestingly, the benefit must be elected when the contract is purchased, but the owner is not charged a living benefit fee until funds are transferred into the guaranteed subaccounts.
  • Security Benefit backed away from the VA business by removing all its living and death benefits.
  • Ohio National enhanced its no lapse guarantee. The insurer added a guaranteed annuitization provision. Guaranteed annuitization rates range from 5% to 6 % for 60 to 70 year olds, provided no withdrawals occur prior to then and the account value falls to zero after that age.