Companies in the variable annuities industry filed very few new contracts and only a small number of new benefits in the first quarter. But they were busy making changes to existing products, especially by adjusting fees and revising step-ups and withdrawal percentages.
In all, issuers filed changes to 97 annuity products in the quarter - the most recent data available - compared with 101 filings during the fourth quarter of 2012 and 59 in the first quarter of 2012. In general, the changes were to reduce living benefit guarantees and constrain risk.
AXA launched two products, Accumulator (13) and Retirement Cornerstone (13), with updated versions of guaranteed minimum income benefits. Its new GMIB I costs 1.15% (up from 1.1%) and guarantees a benefit base to annuitize after a 10-year waiting period. A 5% step-up works until age 85 or first withdrawal; the step-up is 4% if the first withdrawal is taken before the age 65 anniversary (the highest anniversary value step-up is dropped). The new version of the GMIB II costs 1.3% (up from 1.25%) and guarantees a benefit base to annuitize after 10 years, with a 5% step-up until age 85 or the first withdrawal (4% if the first withdrawal is before age 65).
Both benefits offer a no lapse guarantee that annuitizes the remaining benefit base if the account value falls to zero, as well as a conversion feature that turns the benefit into a lifetime guaranteed minimum withdrawal benefit with the greatest of either a 5% withdrawal of the benefit base or 6% of the account value if the GMIB is not exercised by age 85. AXA is offering single and joint versions of both benefits.
Another new product is being offered by Forethought Financial Group, which issued its first variable annuity contract. The ForeRetirement variable annuity is available in B, C and L shares. The fee for the B share is 1.15%, which includes a 0.5% premium-based charge. The contract offers a lifetime guaranteed minimum withdrawal benefit for an additional 1.25% charge, with an age-banded withdrawal percentage (5% for a 65-year-old, or 4.5% in the joint-life version) and two types of step-ups: highest daily value and a 6% fixed step-up for 10 years. There is also a second lifetime guaranteed minimum withdrawal benefit with a highest-anniversary, rather than daily, value step-up for a 1.05% fee.
Among noteworthy product changes, Hartford offered a cash buyout to current Direct M and Leaders Series contract holders. Owners of the Lifetime Income Builder II rider were offered the greater of the contract value on the surrender date or, if the account is underwater, the contract value plus 20% of the benefit base (with the total capped at 90% of the benefit base).
Nationwide increased the withdrawal percentage of the joint version of its Lifetime GMWB called the 7% Lifetime Income Rider. It also increased the fee to 1.5% from 1.2%. At age 65, the withdrawal is 4.75%, up from 4.5%.
Ohio National cut step-ups and some withdrawal percentages on its GLWB Plus (joint version). The withdrawal percentage dropped a quarter of a percentage point to 3.75% for age 591/2, and by a half of a percentage point to 4% for a 65-year-old; the step-up fell to 6% from 7%.
Also, Principal lowered the issue age for its Lifetime GMWB to 55 and created a new withdrawal age band on the GLWB for 55- to 59-year-olds of 4.5% (single) and 4% (joint).
Frank O'Connor is product manager for annuity data at Morningstar.