VA's Decreasing Guarantees

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Nov 26, 2008 12:14 am

From the WSJ:  http://online.wsj.com/article/SB122765607963758097.html



 
It looks like the pendulum has swung too far in one direction, so some retracement of guarantees is in order.  When one does it, they all do it.
 
This is probably a good thing for the industry. 
Nov 26, 2008 1:08 am

Yeah, all the joint life stuff is starting to look like defined benefit plans; for example, instead of the single life and joint life payouts being uniform, you now take a hit by adding your spouse to the benefits. 

Many fees are being reworked too. 

I expect the place to look a little different come january as all the insurers race to get this stuff finalized in december. 

Jan 4, 2009 2:54 pm

All the benefits are changing and the last to know is the wholesaler.  They all want to believe their benefit will not change.  It's not the equity market that is forcing the changes but rather treasury yields.  Even in 2002 treasury yields where 5-5.5%.  Today at just over 2% the companys can't take the risk.  By the end of Q1 all will have changed and if they don't you may want to look for another option.

Jan 4, 2009 5:11 pm

RepRep....It's also about balancing risk. 

Sure, most VAs purchased today have very little risk to the insurer, but all the business that they've done in the last 5 years has to be reworked in the models. 

And every one of my wholesalers have been wonderfully informed about all the upcoming changes. 

Jan 4, 2009 6:11 pm

So are there dates in January to be aware of with certain living benfits/insurers?

Jan 4, 2009 9:51 pm

Gordon,

Most of the changes have to be approved by each individual state.  In that regard, most wholesalers can't give you an official date (until it gets really close). 

There's usually a 30-day grace period once the changes have been approved, so you can use either product. 

Jan 5, 2009 7:43 am

I agree with your statement about risk going forward. One wholesaler tells me there is little chance anyone would use the living benefit if investing now. I am thinking "why would I have a client pay 3-4% versus 1 1/2 in a c share?".

Jan 5, 2009 8:41 am
Gordon Gekko:

I agree with your statement about risk going forward. One wholesaler tells me there is little chance anyone would use the living benefit if investing now. I am thinking "why would I have a client pay 3-4% versus 1 1/2 in a c share?".




That same wholesaler is telling the next guy that living benefits are the bomb. He knows that you don't understand the real cost of c shares and is pandering to you ignorance about fees.

Jan 5, 2009 10:15 am

Have you noticed that all the big insurance companies are the ones with stock troubles also, Hartford, AXA, etc...

 
I tend to favor the other companies, Ohio National, Pacific. etc.. they seem to be doing just fine, when they don't have to worry about their stock price..
Jan 5, 2009 10:31 am
chief123:

Have you noticed that all the big insurance companies are the ones with stock troubles also, Hartford, AXA, etc...

 
I tend to favor the other companies, Ohio National, Pacific. etc.. they seem to be doing just fine, when they don't have to worry about their stock price..
 
FWIW, Mass Mutual dropped their 6% GMIB.  5% is still available.
Jan 5, 2009 12:03 pm
Gordon Gekko:

I agree with your statement about risk going forward. One wholesaler tells me there is little chance anyone would use the living benefit if investing now. I am thinking "why would I have a client pay 3-4% versus 1 1/2 in a c share?".

 
This is one of those nonsensical statements.
Jan 5, 2009 7:25 pm

How so?

Jan 5, 2009 7:44 pm
Gordon Gekko:

How so?

 
The wholesaler says there is little chance of a living benefit being used now?  How is that?  Many people who were counting on their accounts to be there for retirement are seeing them down 30+%.  Some people now don't want to take the necessary risk in equities.  Yet some will withdraw from their accounts way too much and won't realize the damage of what they've done until it's too late.  Plus, how confident are you that the market will even come back in time for these people?  In this environment, I'd take 6 or 7% minimum net of any and all fees.
 
Speaking of fees, the VA's I do are between 3-3.15% all in.  A typical C share mutual fund account can easily get to 2+% all in when you factor in everything.  Is that extra 1% worth it?  Ask anyone who bought it before the market crashed.  Ask my clients that bought it since October...they are locking in all the way up in this rally.  And if the rally eventually runs out of steam, ask them again. 
 
To answer your question, why would you pay the fees, you're comparing to very different things.  The question is, what value do you get for what you pay?  My VA clients know the minimum of what they will get.  I can circle a number on paper and plan around it.  My mutual fund clients don't know what they will get.  Hopefully they will do well, but there is no guarantee.
 
 
Jan 5, 2009 7:58 pm
Gordon Gekko:

How so?



You don't understand the true costs of MF ownership. I would suggest looking things up before you make a fool of yourself here.

Jan 5, 2009 7:58 pm

So do you use that daily lock VA?



That 1% can add up over time. 1% on a million x 10 years= 100k extra. For the right person, it makes sense.
Jan 5, 2009 8:02 pm

Do you think VA's would be as wildly popular if they paid the broker the same as mutual funds? Right or wrong, I doubt it due to the complexity/lockup/cost.

Jan 5, 2009 8:03 pm

Hey Hank, I fully understand the whole cost thing. Why don't you grow up a little and raise the level of conversation on this board above the kindergarten level?

Jan 5, 2009 8:05 pm
Gordon Gekko:

Hey Hank, I fully understand the whole cost thing. Why don't you grow up a little and raise the level of conversation on this board above the kindergarten level?



Name a couple of c share funds that you use and your best guess as to what they cost.

Jan 5, 2009 8:08 pm

Gee, does it have something to do with turnover? Thanks for enlightening me, guru!

Jan 5, 2009 8:14 pm
Gordon Gekko:

Gee, does it have something to do with turnover? Thanks for enlightening me, guru!



If you're so smart, why did you LIE about the cost comparison between c shares and annuities? Name a couple of c share funds that you use and your best guess as to what they cost. Do you have the guts to do this?