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Jackson National Has a Growing Share of a Shrinking VA Market

Posted on December 9, 2015 by Editorial Staff -

Variable annuity sales fell by almost 10% in the third quarter of 2015 from the prior quarter, to $31.2 billion from $34.7 billion, as all of the top ten carriers experienced a drop in sales, according to Morningstar’s quarterly VA sales analysis. Industry net sales dropped 10% in the third quarter of 2015 versus the third quarter of 2014.

The VA industry overall (excluding Lincoln) experienced a net outflow of $7.124 billion in 3Q2015, as TIAA-CREF, Hartford, Genworth and others experienced significant outflows.

Jackson National led all other issuers in the third quarter of 2015 with $6.01 billion in sales, down from $6.5 billion in the previous quarter. A unit of British insurance giant Prudential plc, Jackson issued three of the four best-selling individual contracts: Perspective II (7-year), the Elite Access B and the Perspective L-share. The Perspective contracts offer living benefits while the Elite Access B is an investment-only VA that offers investors broad access to liquid alternative investments. Jackson had a 19.2% market share, or more than double its closest competitor’s.

Looking at sales channels, Jackson National was by large margins the top VA seller in the bank/credit union channel, the independent broker-dealer channel and the wirehouse channel, while TIAA-CREF dominated the captive-agency channel. About two-thirds of VA sales go through either the independent b/d channel or the captive channel.

TIAA-CREF rose to second place (from fourth in 3Q2014) with $3.1 billion and 9.8% share, leapfrogging AIG and Lincoln. AIG booked a strong $2.9 billion and 9.2% share for third place, just ahead of Lincoln’s $2.8 billion and 9.1% fourth place result. AXA jumped from seventh position (in 3Q2014) to fifth with $2.3 billion and a 7.4% share. (Lincoln National reported net sales for 3Q2015 but not assets under management or net flows.)

Historically, third-quarter sales have been soft for variable annuities. Declines from the second quarter have occurred in each of the last ten years and declines from the previous third quarter have occurred in each of the last four years. Among the top ten issuers, only Jackson National and MetLife experienced year-over-year sales gains. TIAA-CREF and AXA sales were flat while the remaining six experienced drops in net sales. The top ten sellers accounted for almost 81% of total VA sales in 3Q2015.

Several contracts made notable leaps in sales. Ameriprise Financial’s RVS RAVAS Advantage (10-year) contract rose to fourth place from eighth, Prudential Defined Income jumped to position 13 from 18, AXA’s Structured Capital Strategies-B to 16 from 42, MetLife’s Preference Premier-B to 17 from 34, ING Multiple-Sponsored to 18 from 25, AXA’s EQUI-VEST 201 to 30 from 45, Guardian Investor III-B to 32 from 58 and MassMutual’s Transition Select (7-year) to 40 from 55.

In terms of total variable annuity AUM, several companies in the top 15 have registered significant gains in market share, year-over-year. Market share for Jackson National has grown by 18.27%, Thrivent Financial by 17.99%, AEGON/Transamerica by 15.36%, AIG by 14.14%, and Fidelity Investments Life (FILI) by 13.06%. Year-over-year AUM fell 3.4% industry-wide; the S&P 500’s total return for the rolling twelve months ended September 30, 2015 was 0.61%.

While issuance of VA contracts is concentrated among a relative handful of insurance companies, management of the $1.68 trillion in variable annuity assets is widely dispersed among many asset managers, none of which has more than 2.2% ($37 billion) of the market, as of the end of 3Q2015.

The ten leading VA fund sub-advisors are T. Rowe Price, Quantitative Management Associates (Prudential Financial), Wellington Management, AllianceBernstein, PIMCO, Voya, Mellon Capital, Standard & Poor’s, BlackRock and Milliman Financial Risk Management.

“In the moneyness” drives VA policyholder behavior: Ruark

Posted on December 9, 2015 by Editorial Staff -

Ruark, the actuarial consulting firm based near Hartford, CT, has issued the highlights of its Fall 2015 Variable Annuity Experience Study, which analyzes policyholders’ usage of their variable annuity benefits. Because insurers assume certain lapse rates when pricing their contracts, client behavior that deviates from those assumptions can significantly affect profitability.

Participants in the Ruark study included AIG Life & Retirement, Allianz, AXA, Commonwealth, Genworth, Guardian, John Hancock, MassMutual, MetLife, Nationwide, New York Life, Ohio National, Pacific Life, Penn Mutual, Phoenix, Protective, Prudential, Security Benefit and Voya. The complete results are available only to data participants who have purchased them.

Highlights of the study include:

Fairly stable surrender rates over the past six years. Surrenders at the shock duration (the year following the end of the CDSC period) have remained fairly stable since the beginning of 2009. This stability followed a steep decline from nearly 30% at the onset of the economic recession. As the VA industry retrenched its product offerings in the wake of market volatility and low interest rates, contract owners no longer had ever-richer guarantee options within VAs or attractive vehicles outside of VAs to move to.

Effect of the “moneyness” and the presence of a living benefit is notable. Contracts that are in the money on an actuarial or nominal basis with a GMIB or lifetime GMWB GLWB have much better persistency than those out of the money or with other types of guarantees. GMIBs have surpassed GLWBs in this regard only in the past several years, with rates now a point and a half lower at the shock and nearly a point lower post-shock.

What is less important? Factors that are less significant for assumptions include attained age, gender and contract size. Even when surrender rate differences by these measures appear, they are explained away once the more significant factors of surrender charge and living benefit presence and value are accounted for.

Annual withdrawal frequency rates have been increasing over the past several years. Some of this change is due to demographics: Frequencies go up with age. However, even rates within age buckets have increased. GLWB riders are riskiest to the writing companies when contract owners take the full maximum annual withdrawal amount. Utilization of the withdrawal feature continues to be less efficient in this way than initially expected, although efficiency is slowly increasing. Overall, a bit less than half of annual withdrawals are at this maximum amount, while a third take less than that. The remaining 20% of withdrawals are in excess of the maximum, which degrades the guarantee for future years.

Principal drivers of GMIB annuitization are the relative value of the rider (“in the moneyness”) and attained age. Rider forms that allow partial dollar-for-dollar withdrawals have much lower exercise rates than those that reduce the benefit in a pro-rata fashion. The latter form emphasizes the availability of guaranteed income while retaining control of the account value, and so is more akin to a lifetime GMWB rider than a traditional GMIB.

Insider selling contrasts with share buybacks: TrimTabs

Posted on December 9, 2015 by Editorial Staff -

TrimTabs Investment Research reported today that corporate insiders sold $7.6 billion in November, the second-highest monthly volume this year.

“Insiders aggressively ramped up their selling in the wake of the big October rally, which is a cautionary longer-term sign for U.S. equities,” said David Santschi, TrimTabs’ CEO. “The last time insider selling was higher was back in May, and the S&P 500 fell 6.4% in the following three months.”

TrimTabs tracks insider transactions based on filings of Form 4 with the Securities and Exchange Commission. Last month’s volume was the fourth highest in the past three years.

In a research note, TrimTabs explained that insiders are selling heavily with their own money even as they lay out huge amounts of shareholders’ money to buy shares. A staggering $1.37 trillion in cash has been committed to buy U.S. public companies and repurchase shares in U.S. public companies this year, smashing the previous annual record of $1.26 trillion in 2007.

“Amid a slow-growth economy, insiders are spending loads of shareholders’ money on takeovers and buybacks to boost revenue as well as earnings per share, but they’re selling hard with their own money,” said Santschi.

The Bucket

Posted on December 9, 2015 by Editorial Staff -

MetLife survey elicits plan sponsor views on stable value funds

Most (82%) of defined contribution (DC) plan sponsors who are familiar with the U.S. Securities & Exchange Commission’s (SEC) amendments to the rules governing money market funds (MMF) feel that stable value is a more attractive capital preservation option for plan participants than money market funds, according to MetLife’s 2015 Stable Value Study, released this week.

Most of the stable value fund providers and advisors who were interviewed for the study and are familiar with MMF reforms predicted that the use of money market funds in defined contribution plans would decline over the next few years. A full report examining these findings is available at www.metlife.com/stablevaluestudy2015.

MetLife Stable Value Fund has a one-year return of 2.51%, an annual expense ratio of 62 basis points, an average duration of 4.2 years and an average credit quality of AA-. Its assets are invested primarily in corporate bonds (34%), mortgage-backed securities (22%) and Treasuries (21%).

In the survey, plan sponsors gave several reasons for offering stable value funds: to provide a capital preservation option (65%); a guaranteed rate of return (50%); better returns than money market and other capital preservation options (49%).

Among plans with more than 100 participants that added stable value in the past two years, 77% offer stable value because it offers better returns than money market and other capital preservation options, up significantly from 38% in the MetLife 2013 Stable Value Study. Only 17% of plan sponsors and 23% of plan advisors knew that stable value returns have exceed inflation over the past 25 years, however.

The study found that almost half of sponsors (47%) are unaware that stable value returns have outperformed money market returns: 22% believe that stable value and money market returns have been about equal and 21% don’t know how the returns compare. Additionally, 4% actually believe that money market funds have performed better than stable value over this time period.

In addition to these reforms, recent litigation would also likely affect plan sponsors’ decisions about which capital preservation products to make available to DC plan participants, the MetLife release said.

Six months after a $62 million class action settlement, followed by a recent U.S. Supreme Court ruling in Tibble v. Edison, 20% of plan sponsors said they are considering alternatives to money market, according to the study.

To conduct the research, MetLife engaged Greenwald & Associates and Asset International, Inc., publishers of PLANSPONSOR and PLANADVISER magazines. Three separate studies were conducted: An online survey of 205 plan sponsors conducted in June 2015, as well as in-depth phone interviews with 20 stable value fund providers and nine advisors during July 14 to August 28, 2015. Assets under management for plans included in the study ranged from under $10 million to $2.5 billion or more.

New Genworth tool prevents “NIGO” applications

Time is money, of course, and contract applications that contain fatal errors—so-called “Not In Good Order” or NIGO applications—can eat up time. Often requiring resubmissions, they can sap the productivity of insurers and brokers as they try to put new business on the books.

To reduce the frequency of NIGOs, Genworth has launched a free electronic platform “designed to help financial professionals improve the accuracy of fixed annuity applications, boost productivity and improve the customer experience,” according to a Genworth release.

The platform, called the Annuity Smart Application Process, or ASAP, is designed for use with Genworth’s SecureLiving Index 10 Plus, SecureLiving Index 7, SecureLiving Index 5, and SecureLiving Growth+ with Income Choice rider.

The forms used in the electronic platform are identical to the paper application process, eliminating any potential learning curve for financial professionals already familiar with the traditional forms.

ASAP reduces application errors with these functions:

Numbers Check: An auto-fill component that checks users’ math as they navigate the application, especially when they use different crediting strategies that require multiple calculations.
Help Bubbles: Explanatory pop-ups provide guidance in the most complex sections of the application.
Form Rules: Based on form entry, fields will be opened (or closed) for completion, and the correct form package will be added to the application.

Mark Madgett to lead New York Life agency division

New York Life has appointed Mark Madgett, a senior vice president, to its executive management committee, which assists CEO Ted Mathas in setting company policy.

Madgett will succeed the retiring Mark Pfaff as head of the insurer’s 12,000-agent Agency Department on January 1, 2016, reporting to New York Life president John Kim.

Madgett, 54, joined New York Life as an agent in Colorado in 1986. He moved into sales management in Denver in 1992, becoming managing partner of New York Life general offices in the state of Washington in 1998 and moving to the home office in 2014. He holds a B.S. in business from Saint Mary’s College of California.

TIAA-CREF survey shows impact of advisors

Only 58% of the men and just 37% of the women in New York State feel confident that they are saving enough money to last throughout their retirement, according to TIAA-CREF’s annual Advice Matters survey.

Overall, 52% of state residents say they have never sought professional financial advice, compared to a national average of 47%. TIAA-CREF conducted identical surveys in New York State and at a national level.

More than a third (36%) of New York residents who haven’t worked with a professional financial advisor say they don’t think they have enough money to do so. Overall, more 51% of New York residents and 45% of Americans believe they need at least $50,000 in savings to justify meeting with an advisor.

The survey found that New York respondents who have met with a financial advisor are significantly more confident in their retirement savings planning than those who haven’t (79% versus 52%).

New York residents who received professional financial advice reported they subsequently re-allocated their retirement accounts (39%), saved more (31%), spent less (27%), or checked their accounts more frequently (30%).

New Yorkers who have discussed retirement with an advisor are much more likely to have calculated how much income they will need in retirement (74% versus only 39% of those who have not met with an advisor). Eighty percent of those who have met with an advisor have discussed ways to turn their savings into monthly income upon retirement, and 47% have acted on those recommendations.

About half (51%) of New Yorkers said they believe they will need less than 75% of their current income in retirement, TIAA-CREF found.

AARP and friends fight move to tax retirement income in Illinois

A bill filed this week in the Illinois House would block taxation of retirement income, which has been proposed as a revenue solutions for the state’s budget crisis—part of which comes, ironically, from inadequate public pension funding.

House Resolution 890 was filed by state representative David McSweeney (R-Barrington Hills) and endorsed by AARP Illinois, which has 1.7 million members.

Illinois has the second-highest average property taxes in the nation, at $3,939, second only to New Jersey’s $3,971, according to an AARP release.

Different folks want different (benefit) strokes: MassMutual

Preferences for workplace benefits such as 401(k) plan matches, health insurance coverage and paid vacation days vary by age and gender, according to a new study by MassMutual.

Overall, 47% of American workers age 18 and older prefer more vacation time, while 44% preferring better 401(k) matches, according to the 2015 MassMutual Generations@Work Study. Men tend to prefer more time off while women focus on health-related benefits.

Half of all Boomers surveyed (50%) and 48% of Millennials said they would opt for more vacation days if they could, according to the study. Nearly half of Gen Xers (47%) prefer better 401(k) matches, with more vacation days coming in a close second (44%), MassMutual found.

Generational preferences

Forty-three percent of Boomers want better 401(k) matches, 38% want free healthcare coverage, and 24% want more investment choices in their retirement plans, according to the study. Four in 10 (43%) want expanded healthcare benefits.

Unlike Boomers, Millennials would like flexible work schedules (43%) and reimbursements for education and tuition (30%). Gen-Xers and Boomers want better 401(k) matches.

He said, she said

Men want more vacation time (50%), better 401(k) matches (43%) and flexible work schedules (39%). Women want more vacation (44%), better 401(k) matches and flexible work schedules (40%), expanded healthcare premiums (37%). Men and women diverged regarding free gym memberships (men: 20%; women: 31%), education/tuition reimbursement (men: 18%, women: 27%), and more investment choices for retirement (men: 18%, women: 11%).

Study specifics

According to the study, the benefits Americans would most like to receive from their employer were as follows:

New benefits tool

Earlier this year, MassMutual launched MapMyBenefits, an online tool that enables employees to prioritize their benefits choices. More recently, the insurer introduced BeneClick!, a benefits exchange that allows online enrollment in an employer’s retirement plan, healthcare coverage, insurance protection products and others.

KRC Research conducted the study for MassMutual as part of an employee benefits education initiative. KRC surveyed 1,517 working Americans who were at least age 18 in a wide variety of jobs and industries.

Public pensions still recovering from Great Recession

Average one-year investment returns of 11%, lower amortization periods, and gradual recovery from the 2008 market crash have all contributed to an increase in the average funding level of state local and provincial government pension funds, according to the 2015 NCPERS Public Retirement System Study.

The study, conducted by the National Conference on Public Employee Retirement Systems and Cobalt Community Research, covered 179 state, local and provincial government pension funds with more than 13.5 million active and retired members and with assets exceeding $2.0 trillion. Two-thirds of the plans (68%) were local pension funds and the rest were state pension funds.

Funds had an average funded level of 74.1%, up from 71.5% in 2014. (Fitch Ratings considers 70% funding to be adequate.) Respondents’ overall confidence rating was 8.0 on a 10-point scale, up from 7.9 in 2014 and 7.4 in 2011.

As of the summer of 2015, funds saw average 11.2% for one-year investments (down from14.5% in 2014); 10.7% for three-year investments (up from 10.3% last year); 11.2% for five-year investments (up from 9.8% last year); 7.0% for 10-year investments (versus 7.6%), and 8.5% for 20-year investments (up from 8.1% last year.)

The total average cost to administer funds and pay investment managers declined to 60 basis points from 61 a year earlier. Public pension funding came from member contributions (7%), employer/government contributions (19%) and investment returns (75%). The totals exceed 100% due to rounding.

Third-quarter FIA sales up 13%

Posted on December 3, 2015 by Editorial Staff -

Sales of traditional fixed annuities and MYGA (multi-year guaranteed rate annuity) contracts were $3.09 billion and $6.14 billion, respectively, in the third quarter of 2015, according to the latest edition of Wink’s Sales & Market Report. Sixty-one carriers participated in the survey.

AIG led traditional fixed sales with a 32% market share. New York Life led in MYGA sales, with a 29% market share. The top traditional fixed annuity in overall sales is Jackson National Life’s MAX One XL, for the second consecutive quarter.

New York Life’s Secure Term contract led overall MYGA sales in the third quarter. The average fixed annuity premium was $109,753, up 53% from the previous quarter. The average MYGA premium was $103.554.

Total third quarter sales of indexed annuities were $13.8 billion, up 13% from the previous quarter, and up nearly 21% from the same period last year. “Typically, the third quarter is a down quarter for sales; especially for indexed annuities,” said Sheryl J. Moore, President and CEO of both Moore Market Intelligence and Wink, Inc., in a release. Fifty-five indexed annuity carriers participated in the indexed annuity survey, representing 99.8% of production.

Allianz Life led with a market share of 14.7% and American Equity Companies was ranked second. Rounding out the top five carriers in the market are Great American Insurance Group, AIG, and Nationwide. Allianz Life’s Allianz 222 Annuity was the top-selling indexed annuity for the third consecutive quarter.

ICI releases first-half DC participant activity study

Posted on December 3, 2015 by Editorial Staff -

The Investment Company Institute has released its study, “Defined Contribution Plan Participants’ Activities, First Half 2015,” which is based on DC plan recordkeeper data for more than 26 million participant accounts at employer-based DC plans.

Among the study’s findings:

The majority of DC plan participants continued contributing to their plans. Only 1.8% of DC plan participants stopped contributing in the first half of 2015, compared with 2.1% in the first half of 2014.
Most DC plan participants stayed the course in their asset allocations, as stock values increased slightly. In the first half of 2015, 6.6% of DC plan participants changed the asset allocation of their account balances, the same share as in the first half of 2014. Nearly 6% changed the asset allocation of their contributions, a small increase from 5.1% in the first six months of 2014.
DC plan withdrawal activity remained low and was in line with the prior year’s first half activity. Only 2.2% of DC plan participants took withdrawals in the first half of 2015, compared with 2.3% percent in the first half of 2014. Only 0.9% took hardship withdrawals during the first six months of this year, the same share as in comparable periods over the past three years.
Loan activity was flat at the end of June 2015, despite a seasonal pattern observed over the past several years. Historically, the share of participants with loans outstanding tends to increase after the first quarter of each year. Nevertheless, at the end of June 2015, 17.5% of DC plan participants had loans outstanding, compared with 17.4% at the end of March 2015.

EY releases ‘ US life-annuity insurance outlook’

Posted on December 3, 2015 by Editorial Staff -

US life-annuity insurers will enter 2016 in relatively good financial condition, though rapid advances in technology, rising customer expectations and increasing competition will require insurers to reinvent their strategies, services and processes, according to the 2016 EY US life-annuity insurance outlook.

“Global economic conditions, regulatory and monetary policies, and the political landscape will are still concerns for the industry, which means taking decisive action is important for life-annuity insurers to stay ahead of the curve,” said Doug French, Principal, Financial Services and Insurance and Actuarial Services at Ernst & Young LLP. “After years of bolstering their balance sheets, life-annuity firms are in a strong position to invest in the innovations and technologies needed to fuel growth.”

EY believes US life-annuity insurers should focus on the following six areas in 2016 to remain industry leaders.

Increase the pace of business transformation and innovation. The convergence of technological, regulatory and customer trends can disrupt the industry. Insurers need to rethink their business approach to cope. Insurers should create a company-wide culture of innovation, drive innovation through cross-functional teams and share information openly across departments.
Reinvent products and services for the new digital customer. Failure to respond to customer demands for greater digital access, better information and quicker service will make it difficult for insurers to acquire and retain customers. Priorities for insurers in 2016 include offering anytime, anywhere, any-device access for customers; providing clearer product information and pricing transparency; delivering more flexible solutions; building ongoing customer engagement; and moving from focusing on products to serving as a trusted advisor.
Adjust distribution strategies for technological and regulatory shifts. Life and annuity insurers may find themselves losing market share if they fail to adapt to an omni-channel world. Insurers should adapt services for new distribution models and explore the use of robo-advisors. Insurers also will need to prepare for new fiduciary standards, as the US Department of Labor’s proposed fiduciary rule could upend existing distribution models in 2016.
Reengineer processes to drive efficiency and market growth. Insurers should determine whether their systems are ready for rapid market change, as the current assembly-line approach to policy quoting, issuance and administration can slow application turnaround and detract from the customer and distributor experience. Companies also should ensure their systems meet new regulatory standards, invest in next-generation processes and analytics, revamp IT systems built for simpler times, and consider partnerships that will facilitate technology transformation.
Hire the right talent to lead innovation. Insurers will want to attract young, diverse workers to match emerging customer demographics and help drive innovation. Priorities for 2016 should include competing for the talent required to build the next-generation insurance company, offer greater flexibility in work locations, find creative ways to motivate and reward employees, and make diversity a strategic imperative.
Place cybersecurity high on the corporate agenda. Leveraging social media, the cloud and other digital technologies will expose life and annuity insurers to greater cyber risks in 2016. To protect their businesses and clients, insurers will need to take strong measures to keep their technical platforms secure. Companies will need to take a broad view of potential risks, such as cyber-attacks and reputational risks through social media. Insurers also will want to establish processes to monitor changing data regulations around the world, as their data could reside in multiple jurisdictions and be subject to a variety of laws.

Read the complete 2016 EY US life-annuity insurance outlook at www.ey.com/insurance.

The Bucket

Posted on December 3, 2015 by Editorial Staff -

Genworth launches uncapped FIA crediting strategy

Genworth announced today that it has launched a new uncapped volatility control spread index crediting strategy on select SecureLiving Fixed Index Annuity products. The strategy is based on the Barclays U.S. Low Volatility II Equity ER Risk Controlled Index (“Barclays U.S. Low Volatility Index”). The volatility control spread strategy is designed to deliver greater growth opportunity than a traditional cap strategy, with more stable spreads regardless of the interest rate environment.

Genworth selected the Barclays U.S. Low Volatility Index, which tracks 50 of the lowest volatility U.S. stocks on the New York Stock Exchange and NASDAQ, as the basis for the uncapped volatility control spread index crediting strategy. The Barclays U.S. Low Volatility Index, which is rebalanced monthly, includes many well-known stocks and the return includes reinvestment of any dividends. On a daily basis, it will increase or decrease the exposure to the 50 stocks, up to 100 percent, based on the stated target volatility level. It does not include any bond index or exotic components, which can cause a drag on performance when interest rates rise.

With the new volatility control spread strategy, interest is:

· Credited at the end of each 2-year term, and

· Calculated by using the percentage change over the 2-year term, less the term spread, and adjusted by the participation rate.

Because there is no cap on the performance of the strategy — only a spread and participation rate — credited interest can be significant when the Barclays Low Volatility Index returns positive performance over a 2-year term. For example, if the index sees 16 percent positive performance over two years and the annual spread is 1.5 percent (3 percent over the 2-year term) with a 100% participation rate, the interest credit is 13 percent. If the index decreases during a 2-year term, interest credited will never be less than zero percent, thereby protecting the contract value from market losses.

Whether a client’s goal is accumulation or income focused, when combined with other popular features available on Genworth’s SecureLiving Fixed Index Annuities, the uncapped volatility control spread strategy and Barclays U.S. Low Volatility Index and offers consumers a unique value proposition in terms of even greater growth potential and industry-leading flexibility.

For example, Genworth is the only carrier offering every index annuity contract owner renewal cap protection. This flexibility provides that, regardless of which crediting strategy their money is allocated into, a client may withdraw the entire accumulated contract value of the annuity without penalty if the declared renewal cap on the annual cap strategy falls below the contract’s bailout cap rate.

DTCC launches ‘Data as a Service’ (DaaS)

The Depository Trust & Clearing Corporation (DTCC), the provider of post-trade market infrastructure and data provisioning services for the global financial services industry, announces the launch of its Data as a Service (DaaS) offering.

The newest offering from DTCC Data Products “transforms the way data is accessed and presented from DTCC’s clearing, settlement, asset servicing and derivatives trade reporting solutions, providing firms with new insights on trading activities across multiple asset classes,” DTCC said in a release.

The DaaS offering provides subscribers access to their own firm-specific transaction data, as well as positions aggregate data along with tools to customize views. DaaS delivers asset class specific data, including transaction volumes, positions and exposure.

DTCC Data Products was created in response to client need for centralized on-demand access to multiple sources of market and reference data. DaaS enables clients to mitigate risk, enhance efficiencies and reduce costs, as well as to meet new regulatory requirements.

A client can access GSD (government securities division) data directly from DTCC’s Fixed Income Clearing Corporation (FICC) service, providing it with access to their GSD activity along with analytics and benchmarking against the overall industry and dealer activity.

Additional perspectives are available through DaaS based on the particular characteristics of a security type, such as by security duration (e.g. 10-year notes) and time until security maturity for U.S. government securities. Each category of aggregate data is available for the current analysis week, month and quarter in direct comparison to its base week, month and quarter.

Future DaaS capabilities, targeted for 2016, will include new query tools for on-demand results, client-configurable data feeds and access to historical data.

John Hancock enhances mobile app, ‘MyLifeNow’

Employees of John Hancock Total Retirement Solutions plan sponsor clients can now use John Hancock’s mobile app, MyLifeNow to enroll in their 401(k) plans using their smartphones, the U.S. arm of ManuLife announced this week.

The MyLifeNow mobile app was launched in 2013 to give participants anywhere access to their 401(k) account balance, personal rate of return, estimated annual retirement income, year-to-date contributions, and investment allocations by asset class. Earlier this year, the company added transactional capabilities, including reviewing and changing contribution percentage rates and enrolling in a plan’s auto-increase capability.

Assets under management and administration by Manulife and its subsidiaries were C$888 billion(US$663 billion) as at September 30, 2015. Manulife Financial Corporation trades as ‘MFC’ on the TSX, NYSE and PSE, and under ‘945’ on the SEHK.

Witherow to lead Voya’s large plan DC business

Mary Witherow joined Voya Financial’s retirement business in early November as senior vice president and head of Relationship Management for the Large Corporate Market, taking responsibility for client satisfaction, retention and growth in Voya’s large employer-sponsored 401(k) defined contribution and benefit plans, Voya told RIJ.

Witherow, who replaces the retiring Sandy Tassinari, works in Voya’s Braintree, MA, office. She reports to Rich Linton, president of Large Market and Retail Wealth Management for Voya Retirement.

Over the past 15 years with Fidelity Investments, Witherow held several leadership positions in the retirement business, first in Large Corporate Relationship Management and later as the senior vice president and head of Relationship Management for the Advisor-distributed Market.

Prior to that, Witherow worked as an attorney for the U.S. Department of Labor where she served as counsel for ERISA. She holds a B.A. and a J.D. from the University of Oklahoma and is a registered representative with a Series 6, 7, 24, 26 and 63 licenses.

Vanguard captures 82.5% of 2015 fund flows through October

Posted on November 30, 2015 by Editorial Staff -

Vanguard has continued to gather up the lion’s share of net fund flows in the first ten months of 2015, with net flows of $191 billion, according to the most recent monthly Morningstar Direct Asset Flows Report, published Nov. 12.

As of the end of October, shares in Vanguard funds were worth about $2.9 trillion, or just over 20% of the market value of open-end mutual funds and ETFs, excluding money market funds and funds-of-funds. The numbers also do not include assets in retirement plans.

Of the $231.5 billion in net flows to such funds in the first 10 months of 2015, Vanguard accounted for 82.5%. The lopsided gain in assets was offset by significant outflows, especially from PIMCO, SPDR State Street Global Advisors, Franklin Templeton, Columbia and Oppenheimer Funds.

The ten largest fund families, out of hundreds of fund families, accounted for 57% or about $8 billion of the $14 trillion in assets held in these types of funds. The 50 largest fund families accounted for about 85% of the assets, or about $11.8 billion.

In October, BlackRock iShares had net flows of $14.96 billion while Vanguard’s passive funds had net flows of $14.74 billion. It was the second consecutive month in which flows to BlackRock iShares were slightly greater than flows to Vanguard passive funds.

In the year ending on October 31, 2015, PIMCO registered net outflows of about $114 billion, with about $79 billion of that coming out of the Newport Beach, CA-based firm’s big actively managed bond fund, PIMCO Total Return Fund.

Over that time period, Vanguard Total International Bond Index Fund, a passively managed fund, experienced net flows of $20.9 billion, while actively managed Metropolitan West Total Return Bond Fund collected a net $27.7 billion, for a remarkable one-year growth rate of 68%.

Morningstar analyst Alina Lamy noted in the report that investors returned to high-yield bonds in November after preferring government bonds for several months. “In a complete reversal from last month, high-yield and intermediate-term bond moved from the bottom to the top five categories—a drastic change in investors’ appetite for risk in the fixed-income space,” she wrote. “Investors might be trying to anticipate the potential December interest-rate raise.”

“High-yield bonds are less sensitive to interest-rate changes and therefore tend to perform better in a rising-interest-rate environment,” Lamy explained in an email to RIJ. “[Their prices] tend to be more sensitive to factors such as the financial health of the issuer, the general economic outlook, and corporate earnings, than to fluctuations in interest rates.

“However, high-yield bonds also carry more credit risk than investment-grade bonds. So, in essence, investors are swapping interest-rate risk for credit risk. The fact they are doing that appears to indicate that investors are now willing to take on more credit risk in order to protect from interest-rate risk, which seems to me a move to position portfolios in anticipation of a potential rate increase (likely to happen in December).”

Fidelity and Betterment: From Collaborators to Competitors

Posted on November 30, 2015 by Kerry Pechter -

As you may have read elsewhere, Betterment Institutional is on its way out as the digital platform for Fidelity-affiliated registered investment advisors. “We have decided not to re-new our agreement with Betterment Institutional. We will wind-down the strategic alliance by the end of the year,” said Fidelity spokesperson Erica Birke in an email to RIJ this week.

“This strategic alliance was a practice management referral agreement for RIA clients of Fidelity Clearing & Custody, so the primary shift is that we will no longer actively promote and support the alliance. Fidelity clients that have formed a relationship with Betterment can continue to work with Betterment, and Fidelity will continue to support their needs.”

Given the fact that Betterment’s own online direct-to-consumer RIA business offers only exchange-traded funds from Vanguard (not Fidelity or iShares) to its 120,000 clients, the split between Fidelity and Betterment probably shouldn’t shock anybody.

In fact, giant Fidelity now competes with tiny Betterment in the direct digital advisory channel. Fidelity is currently testing a robo-advisory service called Fidelity Go. According to a disclosure document, Fidelity Go is a “discretionary investment management service designed for individual investors with accounts as small as $5,000. Clients of the Service are currently limited to employees of Fidelity (or select contractors providing services to Fidelity)” and Geode Capital Management, the third-party investment advisor that’s working with Fidelity on this.

Millennials—that’s the target market—who sign up for Fidelity Go will have their money invested for them in low-cost passively managed Fidelity ETFs or BlackRock iShares. Depending on the investors’ expressed risk appetites (or aversions) and investment goals, their money will go into portfolios containing between 20% and 85% equities. When the service goes live next year, Fidelity intends to charge an as-yet undisclosed asset-based fee.

An explanatory aside

These events are part of an evolution rather than a revolution, and would have been impossible ten or 12 years ago. Back then, most Millennials were still in school, and didn’t have any money to invest. Direct-sold fund companies like Vanguard and Fidelity were subsidizing small account holders, because fees on small accounts didn’t cover the cost of call centers or prospectus mailings.

Since then, there have been a couple of game-changing (but foreseen by some) demographic and technological changes. The first Millennials graduated from college and started earning money. The smartphone became modern humankind’s chosen universal interface with the world. The cost of computing fell dramatically. People acclimated to digital delivery of all their financial communications.

The advisor world also went digital. Traditional advisors began outsourcing their investment selection and account management chores to third-party platforms. It slowly became acceptable to admit—or even to brag—that cool-headed algorithms, and not human advisors, were creating asset allocations. The robo-advisors, being new and small, were nimbler than the established financial services firms in exploiting these changes.

Most importantly, the leaders of robo-advice firms came from the digital world, not the financial world. It was natural for them to transplant the simplified, disarming on-boarding process of an Uber or Airbnb to the financial services world. At a typical robo site, the visitor is invited to “Sign Up! Get the First Month Free!” with an irreverent informality that wouldn’t come naturally to members of the old guard. The simple-to-navigate robo websites are arguably better suited to their “do-it-for-me” investors than to the do-it-yourself audience that Fidelity, Vanguard and established discount trading platforms have long catered to.

But even this triumph of transcendence over the coldness of computer interfaces was not invented by the robo-advice startups. A full 30 years ago, purchasers of Macintosh computers turned on their little taupe soon-to-be doorstops and were greeted by a cheerful chime and a screen that read, “Hello,” in computer-generated lowercase longhand. In terms of usability, the Macintosh did to the PC what robo-advice websites are currently doing to the traditional online financial interface: Humanizing it.

Back to Fidelity and Betterment

In addition to building its own robo-advice platform, Fidelity is also building an RIA portal that will do what Betterment Institutional has done for the past year: Provide Fidelity’s affiliated advisors with a digital service that could integrate client data into Fidelity’s clearing service.

“[The Betterment] agreement was forged as part of Fidelity Clearing & Custody’s larger practice management and consulting offering. It came at a time when many of Fidelity’s RIA clients and prospects had been following the digital advisor evolution and growth with great interest, and were coming to Fidelity for help in better understanding the landscape and learning about the options available to them,” Birke wrote in the recent email to RIJ.

“The alliance fit within our strategy to offer one-to-one engagement with our RIA clients and prospects, helping to educate them, assess opportunities and activate a strategy to drive growth. Fidelity is now building its own version of such a digital service. We determined that most of our clients are looking for a solution that is deeply integrated into our clearing and custody platform, customizable, and allows the investment advisor flexibility in investment decision-making and product selection.

“We are moving forward with a vision that meets those needs. We’ll announce our full technology strategy early next year, including our plans around digital advice, with timelines around key deliverables. The deliverables will happen over the course of 2016-2017. Like any technology build, different components will launch at different stages.”

Removing ‘Lapse Risk’ from Variable Annuities

Posted on November 29, 2015 by Kerry Pechter -

There’s a transatlantic search underway for “capital-efficient savings products” that can give retirement savers the upside potential and downside floors they crave without creating capital-intensive, unhedgeable risks for the life insurers who build them.

Munich Re Group has developed such a product in Europe, and one of its U.S.-based executives, Ari Lindner, introduced it to the 200 or so actuaries and asset managers who attended the Society of Actuaries’ EBIG 2015 conference in Chicago a few weeks ago.

In the separate account product he described, policyholders split their premiums into two, buying a risky asset—an equity mutual fund or balanced fund—and a long-dated put that ensures a return of premium at maturity, which could last as long as 40 years.

Like most variable annuities, the new product allows the contract owners to invest directly in equities or other risky assets. And like fixed indexed annuities, it offers an end-of-term principal guarantee. But it differs from both VAs and FIAs in that it relieves the issuer of “lapse risk” and other risks tied to unpredictable client behavior.

Lapse risk is the risk that policyholders won’t lapse (surrender) their contracts at the rate that insurer actuaries predicted. If experience differs from assumptions, the guarantee may generate economic losses for the insurer, and the mere possibility of this occurrence results in a higher capital requirement.

Lapse risk has created big headaches for European as well as U.S. life insurers. “Almost every major variable annuity writer has absorbed large write-downs on ‘policyholder behavior assumption updates,’” Lindner said. “We’re talking about major players. And the losses have been fairly substantial, if you read the quarterly earnings reports. So the question is, how do we take out that risk?”

A portfolio of puts

Assume a client who buys a 12-year version of the product with a $100,000 premium. The premium covers three components: the load; an investment into shares of a mutual fund; and the purchase of a terminal 12-year put (an option to sell the fund at a certain minimum price) from the insurer. Behind the scenes, the reinsurer (Munich Re, in this case) manages a portfolio of put options to finance the life insurer’s promise to keep the client whole.

[Technically the reinsurer does not physically trade options but synthetically replicates the insurance liability via a dynamic hedging program, “although this is irrelevant to both the primary insurer and the policyholder,” according to Alex Wolf, senior structurer, and Darryl Stewart, senior consultant, in Munich Re’s Life Financial Solutions unit.]

Prior to maturity, the put gains value when the mutual fund loses market value and vice-versa. The overall account value is stabilized because it is comprised of the sum of the mutual fund value and the value of the put (updated daily). At maturity, if the value of the mutual fund equals or exceeds the terminal guarantee (e.g. the initial premium), the put expires with no value. If the mutual fund doesn’t satisfy the guarantee, the put value would make up the shortfall.

“The policyholder invests in a guarantee asset rather than paying for a guarantee on a running basis,” said one of Lindner’s presentation slides. The initial allocation between load, hedge and investment depends on interest rates and market volatility at the time of purchase. In addition to the load, a policyholder pays an annual mortality and expense risk fee.

How the design conserves capital

The product conserves capital, as noted above, by eliminating lapse risk. The timing of a surrender doesn’t affect the insurer because, at any given point in the life of the contract, the surrender value and the value of the separate account are the same. The product pricing doesn’t depend on an assumption about lapse rates, so there’s no risk of a mismatch between the value of assets that support the guarantee and the guarantee, and therefore no chance of a desperate call for more capital.

In a more sophisticated version of the product, the total premium could be split into the following pieces: a front-end load, an investment budget that’s allocated to a mixed income fund (50% volatility-controlled equity fund and 50% Treasuries), a money market fund and a put for each of the two investment sleeves. Under favorable market conditions, all of the premium could go into the mixed income fund and its put.

For the past two years, brokers and both independent and captive agents of ERGO, the direct writer of life insurance policies within Munich Re group, have sold a product like the one just described, called ERGO Rente Garantie, in Germany. The number of in-force policies is in “the five digits” according to Stewart. The front end load for such a product would be about 5% and the budget for the put would be no more than 15% of the premium.

Would it fly in the US?

Would such a product transplant successfully to the United States? According to Lindner, if life insurers in the U.S. can sell GMAB products, then the Munich Re design should be marketable here—unless regulators object to the fact that the guarantee is part of the policyholder’s account.

The product’s only insurance feature at the moment is its death benefit. It can be configured to accept either single or flexible premiums; a guaranteed minimum withdrawal benefit can be added; roll-ups could be offered; the put could guarantee less than 100% of the premium.

One aspect of the product that might appeal to advisors: transparency. “On a variable annuity in the U.S., you can see the value of the risky asset, and you know there’s a guarantee under certain circumstances. But you can’t see what the guarantee is worth or collect it if you choose to terminate the contract prior to taking the guaranteed pay-out,” said Wolf.

As for the sales force, Lindner raised a couple of questions. How would policy illustrations be handled? (In Europe, Munich Re intends to simplify the current version of its product to make it easier for agents to explain and prospects to understand.) And, would the Department of Labor deem the design to be in what the pending fiduciary proposal calls the “best interest of the client.” As for administrative chores, the value of the put would have to be updated on a regular basis (e.g. daily) and reported to the client.

But there’s no question that life insurers are looking for a new kind of annuity product that can sell in the broker-dealer channel, satisfy the investor’s desire for upside potential and downside protection, and, most importantly, not have a large appetite for capital.

Deep in the Data Mines

Posted on November 20, 2015 by Kerry Pechter -

Predictions are always dangerous to make, it is said, especially when they’re about the future. So the search for better prediction tools goes on. One such tool is “predictive modeling,” one of the topics covered at the Society of Actuaries’ Equity-Based Insurance Guarantees (EBIG) conference in Chicago this week.

In many industries, predictive modeling is old news. The health care, finance, Internet, law enforcement and other sectors have long used it to draw conclusions about past events and measure the probability of future ones. It’s a kind of universal drill bit for mining Big Data. But applications in the annuity industry are apparently only a couple of years old.

One driver of interest in predictive modeling among annuity issuers has been its potential for predicting the behavior of policyholders. The profitability (or toxicity) of blocks of in-force contracts with income riders will depend partly on how policyholders use them and how well insurers can anticipate that behavior. Predictive modeling might give insurers a better handle on that problem.

Most of what I heard about predictive modeling in Chicago, frankly, flew past me—a flurry of major league liners over a Little Leaguer’s head. But while the equations and terminology were mysteries, the implications were fairly clear. Predictive modeling has multiple applications in the annuity business, and beats some of the modeling techniques that failed in the financial crisis. It is expensive, hard to do right, and not always successful. But the possibility that it might free up capital has captured life insurers’ attention: Some 200 actuaries and consultants from virtually all the major life insurers and several large asset managers attended the meetings, some from overseas.

What is predictive modeling?

In laymen’s terms, predictive modeling is a way to extract lessons from the past or to predict the probability of events in the future, based on what has happened in the past. Since the dawn of the Internet Age, its applications have been large, small, and pervasive. When Google auto-completes a search term or URL based on the first few letters you type into your browser’s address bar, it uses predictive modeling. It’s how your e-mail spam filter works.

Actuaries and statisticians have been using various methods to calculate risks and probabilities for a long time. But predictive modeling, a child of high-speed computing and big data, is a new twist. At the EBIG conference, it was variously described it as a better way to reveal a distribution of outcomes, as opposed to an expected outcome; or to add context to results; or, generally, to simplify what Nationwide actuary Dan Heyer called problems of “frightening” complexity.

Property and casualty actuaries like Heyer have been using predictive modeling for years to reveal, for instance, the shrinkage of gender differences in collision probabilities as drivers age. But since the Financial Crisis, actuaries at some large annuity issuers have started using predictive models to forecast policyholder behavior. Contract surrender rates and usage rates of income options can determine whether a large block of in-force business will generate a profit or a loss.

“Both for variable annuities and fixed indexed annuities, the more dynamic they become, the harder it is to analyze policyholder behavior with traditional techniques,” said Guillaume Briere-Giroux, a consulting actuary at Oliver Wyman who advises life insurers on predictive modeling.

What can PM do for you?

Predictive modeling can be applied to a wide variety of business problems. In 2015, with variable annuity sales down 20% from the previous year, Lincoln Financial Group wanted to rebalance its wholesaling effort toward indexed annuities, whose sales are flourishing, according to Craig Dealmeida, assistant vice president of Annuity Risk Management at Lincoln.

Through advanced modeling techniques, Dealmeida said, Lincoln was able to distinguish between advisors who would probably be willing to switch from selling VAs to selling FIAs, and advisors who wouldn’t be as flexible. As a result, its FIA wholesalers were able to schedule more visits to high-probability advisors.

In another case, predictive modeling was used to challenge existing interpretations of lapse behavior, said Briere-Giroux. During the financial crisis, annuity issuers noticed that more surrenders were coming from owners of variable annuity contracts with “at-the-money” income riders (where the account values and guaranteed benefit values were about the same) rather than owners of “deep-in-the-money” riders (the account values were much lower than the guaranteed benefit values).

Insurers tended to assume that owners of deep-in-the-money contracts recognized the value of what they owned. But, predictive modeling suggested the alternative possibility that advisors, not owners, were driving the trend. Suitability standards barred advisors from pitching 1035-exchanges to owners of deep-in-the-money contracts, so the advisors limited their exchange transactions—which account for about 85% of annual VA sales—to the owners of less valuable contracts.

Nationwide began examining lapse rates on its fixed deferred annuity contracts in 2013, Heyer said. The number of variables that were involved in predicting lapse behavior was daunting. Variables included the attained age of the contract owner, policy size, crediting rate, guaranteed floor rates, difference between market rate and crediting rate, and whether the contract was qualified on non-qualified. A predictive model that considered the variables one at a time, instead of all at once, produced better lapse estimates, he said.

Another insight into the value of predictive modeling was suggested during Briere-Giroux’ presentation. Insurance actuaries are familiar with hedge-able market risks, like interest rate risk, longevity risk, credit risk and volatility, he said. But, to predict the future, they also have to make assumptions about future lapse rates, annuitization rates and withdrawal rates. Predictive modeling can help them do that.

Predictive modeling techniques also help actuaries refine their analyses of policyholder behavior, the Oliver Wyman consultant said. Without predictive modeling, actuaries might look at all owners of Guaranteed Lifetime Withdrawal Benefit riders as a single group. But predictive modeling techniques make it possible to segment owners into four sub-groups—those who take 100% of their guaranteed monthly income benefit, those who take less or more than 100% of their benefit, and those who haven’t taken a withdrawal yet–each of which has its own characteristic lapse rate.

Freeing up capital

While Lincoln Financial and Nationwide are clearly employing predictive modeling, the adoption rate by other carriers isn’t clear. At the conference, actuaries noted that creating a predictive modeling program can be expensive, partly because it often involves the hiring of Ph.D.-level statisticians to complement the skills of actuaries. But senior executives have difficulty approving an investment in what they don’t fully understand. “Sometimes it’s harder to persuade people to let you do predictive modeling than to do predictive modeling,” Dealmeida said. Actuaries can be more persuasive if they remember to tie their cryptic equations to a business “story,” he added, and to emphasize predictive modeling’s potential to free up capital.

In addition, the process of building predictive models isn’t foolproof. Heyer said he likes to create problems with known answers to see if his models will ferret them out. Conversely, he sometimes assigns nonsense problems to his models to see if they produce an answer that isn’t there. Given the difficulty of making predictions, actuaries should “use the models to inform their decision-making,” he said, “but not to rely on them.”

Don’t Touch the Jenga Tower

Posted on November 20, 2015 by Kerry Pechter -

Arriving at the Society of Actuaries Equity-Based Insurance Guarantees conference in downtown Chicago last Sunday, I greeted the host, Ravi Ravindran of Annuity Systems, Inc. He asked me, in a gesture of cordiality, what I’m currently writing about.

When I mentioned interest rates (among other things), the person sitting next to Ravindran, an actuary at one of the top 10 annuity issuers, whom I had never met before, virtually leaped out of his chair. He said that, contrary to his employer’s official position on the subject (which is that mean-reversion will restore rates eventually), he’s sure that the Federal Reserve won’t raise short-term interest rates in December.

In fact, it’s unlikely that the Fed will raise rates at all in the foreseeable future, he said. As evidence, he didn’t cite feeble GDP growth or a strong dollar or our aging society. Instead he mentioned the towering Jenga-pile of leverage in the U.S. economy. Since this is what I tend to believe, and since validation is so gratifying, I leaned in and listened closely to what he had to say.

If interest rates go up, he said, the prices of existing bonds will be instantly adjusted downward. Eventually, so will the prices of things that are financed with borrowed money. A deflation in asset values will be more or less devastating for those who have borrowed against them. Inflation is a debtor’s friend; deflation is deadly. And deflation is what higher rates could produce.

“We’re stuck,” was the actuary’s verdict. The U.S. has backed itself into a corner. Low rates have made it possible for households to carry $12 trillion worth of debt, and to support the highest-ever prices for homes and for equities (which are backed by almost $500 billion in margin debt). Even a small rate hike, by signaling that the 23-year bull market in stocks and bonds is truly over, might therefore bring the Jenga pile down.

Judging by recent public comments at Project-Syndicate.com and the Financial Times’ website, my new friend isn’t alone in believing that a rate hike is unlikely this year. But most other observers think the Fed doesn’t need to raise rates. The actuary I met in Chicago was one of the few who believes that the Fed can’t raise rates. In his view, the current economy may look static—but only in the sense that, say, a spring-loaded bear trap looks static.

Indexed Annuity Sales Reach New Highs: LIMRA

Posted on November 20, 2015 by Editorial Staff -

U.S. annuity sales totaled $60.6 billion in the third quarter of 2015, up 4% percent compared with the prior year. For the first nine months of 2015, total annuity sales were $175.3 billion, down 2% from the prior year, according to LIMRA Secure Retirement Institute’s quarterly U.S. Individual Annuities Sales Survey.

Indexed annuity sales reached a record-breaking $14.3 billion, up 22% year-over-year and 10% above the previous quarterly best. Growth was driven by many companies, rather than concentrated among the leaders. YTD indexed annuity sales rose 7%, to $38.4 billion.

For the first three-quarters of 2015, Jackson National Life led all variable annuity issuers with $17.8 billion in sales and New York Life led all fixed annuity issuers with $6.7 billion in sales. AIG had the most balanced sales, with $14.5 billion overall ($8.8 billion variable and $5.7 billion fixed). For other sales results, click on chart below.

Variable annuity (VA) sales were hurt by the market volatility, falling 7% in the third quarter to $32.9 billion. Year-to-date VA sales dropped 4% from 2014, to $101.3 billion. Nineteen of the top 20 VA writers, representing about 93% of sales, reported quarter-over-quarter declines.

“Despite high volatility, a significant market correction and lower interest rates, total annuity sales—driven by substantially strong fixed-rate deferred and indexed annuity results—recorded positive growth in the third quarter,” said Todd Giesing, assistant research director, LIMRA Secure Retirement Research, in a release. “There was definitely a flight to safety with every fixed product except fixed immediate and structured settlement annuities recording positive growth.”

“There has been a significant shift in the VA market share over the past several years,” Giesing added. “Today, VA sales make up 54% of the overall annuity business, down from 67% just in 2012. This decline in VA market share has certainly contributed to the growth in the indexed annuity market.”

The VA election rate for GLB riders (when available) was 78% in the third quarter. This is one percentage point higher than prior quarter and prior year.

Sales of fixed annuities increased 21% in the quarter, to $27.7 billion. In the first nine months of 2015, fixed annuity sales increased 2%, to $74 billion.

“Despite the decline in rates, fixed annuity writers have been able to offer competitive rates. Coupled with the equity market volatility, we believe the safety of fixed products is being seen as a safe haven,” noted Giesing.

While all channels are seeing growth in indexed annuity market, the bank channel has experienced remarkable growth. Sales of indexed annuities in banks now represent 18% of sales, up from 6% in 2011. The Institute credits this growth to product innovation; companies have developed simpler products, without GLB riders, as an alternative to bank CDs.

The election rate for indexed annuity GLBs (when available) dropped eight percentage points from prior quarter to 60%. Institute researchers believe the increase of bank sales’ market share (which tend to be sold without GLB riders), as well as more consumers’ shifting priorities (from income generation to principal protection) seeking safety from recent market volatility contributed to the decline.

Sales of fixed-rate deferred annuities rebounded in the third quarter, improving 32% to $9.1 billion. YTD, fixed-rate deferred sales were nearly flat compared with prior year, totaling $23.1 billion.

Despite lower interest rates, single premium immediate annuity sales stayed steady in the third quarter at $2.3 billion. Total SPIA sales were $6.5 billion, down 12% for the first three quarters of 2015.

Deferred income annuity (DIA) were $683 million, growing two percent compared with third quarter of 2014. YTD, DIA sales were dropped 7% from prior year at $1.9 billion. “We are seeing market share spread out among the top ten writers and anticipate DIA sales to increase at a slow, steady pace for the foreseeable future,” Giesing commented.

Eleven companies are now offering QLAC products, the Institute reported. While this is a small part of the DIA market, the Institute predicts sales will see an uptick in 2016.

The 2015 third quarter Annuities Industry Estimates can be found in the updated Data Bank. To view the top twenty rankings of total, variable and fixed annuity writers for second quarter 2015, please visit 2015 Third Quarter Annuity Rankings. To view variable, fixed and total annuity sales over the past 10 years, please visit Annuity Sales 2005-2014. LIMRA Secure Retirement Institute’s third quarter U.S. Individual Annuities Sales Survey represents data from 96% of the market.

MassMutual’s new VA offers exposure to alternatives

Posted on November 20, 2015 by Editorial Staff -

MassMutual has launched a new investment-focused variable annuity, called Capital Vantage, which “allows individuals to invest in both traditional and non-traditional asset classes including hedged equity, alternatives and tactical allocation strategies,” the company said in a release.

The contract will be offered in a B-share with a mortality and expense risk fee of 85 basis points a year and a five-year surrender charge period (starting at 7%), and a C-share with an M&E fee of 130 basis points (which drops to 85 basis points after the fifth contract anniversary) and no surrender charge period.

There’s a 15 basis-point annual administrative fee and an optional return-of-premium death benefit for 35 basis points a year. Annual fund expense ratios start at 51 basis points.

Besides MassMutual funds, contract owners can invest in BlackRock, Fidelity, Ivy and Oppenheimer funds. They can choose a single risk-based asset allocation “fund-of-funds” or build their own portfolios with more than 50 funds in 12 asset classes, including money market, fixed income, balanced, large-cap value, small/mid cap growth and international/global funds.

The product also offers hedged equity, alternatives, tactical allocation funds, and specialized equity funds. Along with these investment options, the product includes standard annuity features such as annuitization options, tax-deferral and death benefit options.

LIMRA launches AnnuityCompass database (for members only)

Posted on November 20, 2015 by Editorial Staff -

LIMRA, the life insurance industry’s research arm, has created a new database for its members, called AnnuityCompass, to furnish them with “contract and product detail on all new and in-force annuity contracts,” according to LIMRA’s website.

A LIMRA spokesperson declined to discuss the resource, which will provide life insurers with competitive intelligence at no cost beyond their LIMRA membership fees.

AnnuityCompass will allow LIMRA members to “query data via a state-of-the-art online system” in order to “mine, filter, and analyze the data anytime from anywhere,” the LIMRA website said. “Your teams in marketing, sales and distribution, product development and risk management can get detailed and strategic information to make intelligent decisions to grow sales, improve distribution strategies and help manage risks more effectively.”

“The data will support virtually all ongoing annuity tracking studies,” according to material on the website, and users of the service will be able to leverage LIMRA’s “extensive experience in relational data management,” “annuity market experts,” and “comprehensive data security policies.”

According to LIMRA’s online promotional material, marketing and sales professionals can use AnnuityCompass to identify sales growth opportunities, track their own company’s marketing and sales campaigns and penetrate new markets.

Product developers can use the service to “feed your product development process,” view profiles of customers purchasing specific products or features, and “be more nimble in making product decisions.”

In addition, AnnuityCompass can provide sales and distribution-related information based on unique identifiers for sales reps and distributors, allowing insurers to:

Determine channel penetration and areas for growth
Benchmark firm and rep productivity
Better communicate with distribution
More effectively deploy resources
Use regional results as benchmarks for performance

Risk managers, LIMRA said, can use AnnuityCompass to compare customer behavior for pricing and risk management, understand guaranteed living benefit risks relative to the industry, benchmark and monitor persistency and identify assets at risk for surrender.

Happy Thanksgiving!

Posted on November 20, 2015 by Editorial Staff -

Fidelity, Vanguard and Schwab are the top-of-mind ‘robo-advisors’

Posted on November 20, 2015 by Editorial Staff -

Nearly one-third (30%) of affluent Americans use some type of automated investment advice service—a “robo-advisor”—to manage a portion of their assets, according to the 2015 Investor Brandscape from Cogent Reports. Another 22% are thinking about placing money with a robo-advisor in the near future.

That doesn’t mean that startups have stolen the show. Seventeen percent of investors are using robo-advisor services from familiar direct providers like Fidelity, Vanguard or Charles Schwab while 10% are using one of nearly two dozen upstarts. (Another 7% of those surveyed couldn’t name their robo provider.)

Cogent Robo Chart 11-20-2015

The market is far from solidified. Of the 22% who expressed interest in robo-advice, only 51% could name a provider. The rest, about 10% of all affluent Americans, said they were “open to learning about automated investment advice solutions from well-known players and upstarts alike,” said Cogent Reports, the syndicated research division of Market Strategies International.

Most (76%) robo-advisor users have under $500,000 in total investable assets; however, money invested with a robo-advisor represents only 60% of users’ assets, on average. Most robo-advisor users are Millennials or Gen Xers, but, four in 10 users are first- or second-wave Boomers.

“The vast majority of near-term adoption of robo-advisors will come not from Millennials, but Gen Xers, the oldest of whom are turning 50 this year,” according to Cogent Reports. Gen Xers are the most interested in robo-advisors and the most likely to name an emerging provider for consideration.

Those most likely to embrace robo-advisors are more concerned about their ability to save for retirement, and a strong desire for better investment performance, York said. “Many pre-retirees see automated investment service solutions as a good way of getting to their retirement goals. …This could have huge implications for the IRA rollover marketplace as well as threaten the dominance of traditional target-date funds inside of DC plans,” she added.

Cogent Reports interviewed 3,889 affluent investors recruited from the Research Now, SSI and Usamp online panels. Respondents had to have at least $100,000 in investable assets (excluding real estate). Due to their opt-in nature, the online panels do not yield a random probability sample of the target population. Thus, target quotas and weighting are set around key demographic variables using the most recent data available from the Survey of Consumer Finances (SCF) conducted by the Federal Reserve Board.

The Bucket

Posted on November 20, 2015 by Editorial Staff -

MassMutual buys tool that shows impact of low savings rates on employers’ bottom lines

MassMutual has purchased the assets of Viability Advisory Group, including “a patent-pending analysis program to help companies evaluate the financial costs associated with employees being unprepared for retirement and the loss of productivity attributed to employees’ lack of financial security,” according to a release.

Hugh O’Toole founded Viability when he left MassMutual Retirement Services in April 2014 after seven years. As part of the acquisition, he will rejoin MassMutual to run the Viability business. Terms of the acquisition were not disclosed.

The insurer called the acquisition “part of a strategy to help financial advisors quantify the value of employee retirement readiness and appropriate benefits plans use to employers’ bottom lines.” The Viability program “calculates the hard-dollar cost of inappropriate or under-utilization of retirement savings and other employee benefits programs,” the release said.

The Viability suite of tools will be offered to MassMutual retirement plans and worksite insurance clients strictly through financial advisors, according to Eric Wietsma, head of Sales and Distribution for MassMutual Retirement Services. The new offering is designed to enhance retirement advisors’ practices and increase their value to employers.

“We believe it’s necessary for employers to engage a financial advisor when making today’s high-stakes benefits decisions,” Wietsma said. “Viability helps advisors demonstrate the economic value of their insights and guidance to their customers.”

Retirement readiness and financial wellness have become a growing concern of employers. Aging employee populations are more expensive for employers while employees’ personal financial problems are eroding workplace productivity.

Every day, approximately 8,000 Americans reach age 65, according to the U.S. Census Bureau. While 65 is the traditional retirement age, eight in 10 workers say they plan to delay retirement, the Employee Benefits Research Institute reports, and one in 10 say they expect never to retire.

One in four employees say personal financial problems have become a distraction at work, according to a 2014 survey of financial wellness issues conducted by PricewaterhouseCoopers. Money issues have consistently topped Americans’ list of biggest stressors since 2007, the American Psychological Association reports.

‘Family offices’ know what the ultra-wealthy want: Cerulli

Multi-family offices and wirehouse advisory teams have realized that HNW and UHNW investors require lots of complementary services, and this recognition has propelled some of them to “elite status, “ according to global analytics firm Cerulli Associates.

“As a channel, MFOs have not only adapted the best, but that they have also moved well ahead of their primary competitors—including the wirehouses—in many key aspects,” said Cerulli associate director Donnie Ethier.

“Other one-time market leaders are left somewhat disoriented and struggling to keep up” while “other firms determined that their expertise and resources are best suited for less wealthy investors.”

Ethier wrote Cerulli’s latest report, High-Net-Worth and Ultra-High-Net-Worth Markets 2015: Understanding and Addressing Family Offices. It focuses on the unique aspects of advising HNW and UHNW families, including their attitudes and behaviors regarding wealth managers.

The report also examines vehicle use, fees, and services provided by wealth managers in family offices, wirehouses, banks, direct providers, and RIAs.

“The industry-wide leaders by assets, the wirehouses, have generally acclimated; however, MFOs will continue to advance and threaten longtime grasps of HNW and UHNW families,” Ethier wrote.

“The wirehouses have encouraged the majority of their advisory teams to focus on clients possessing a minimum of $250,000, which has resulted in advisor productivity that is unrivaled by their largest scalable competitors, the banks. Many private banks continue to set asset minimums at $2 million to $10 million, with family-office services beginning at $25 million to $100 million; still, even these elite global brands are battling larger trends.”

MFOs may never overthrow the wirehouses’ and banks’ rule over the broad HNW market, the report said, but the past and future gains will certainly shift marketshare. If the traditional leaders do not adapt to larger consumer and advisor trends, projections that favor growth of MFOs could actually prove conservative.

“Providing asset management searches, selections, and asset allocation are, for all intents and purposes, no longer the greatest competitive advantage in the HNW and UHNW marketplaces,” continued Ethier.

What is the purpose of money, Thrivent asks

Sixty-one percent of Americans said they would “rather be called generous than financially successful” and more than one-third think that “the purpose of the money they make is to give back,” according to Thrivent Financial’s inaugural 2015 Money Mindset Report.

But the report also found that most Americans, at every income level, lack long-term financial strategies, advice and tools, and many are financially unprepared for the future.

Only 27% of Americans are very confident they are making the right decisions with their money and 27% say they live above their financial means. Thrivent partnered with Wakefield Research for the 2015 Money Mindset Report. It is based on a survey of 1,001 U.S. adults ages 18+ conducted last July.

Millennials: On the cusp of big financial decisions

Using primitive but proven genetic replication technology that was readily at hand, the BabyBoomers cloned themselves in the 1980s and 1990s, thus producing the 77 million 18- to 34-year-olds collectively tagged as “Millennials.”

(Marketing gurus don’t seem to talk much about the Boomers anymore. It’s all about the Millennials and their mobile electronic devices.

Millennials now constitute the largest age cohort in the United States today, according to the latest edition of MacroMonitor, a regular demographic report from Strategic Business Insights. But only 25% of all US households are headed by people who identify as Millennials.

That’s probably because “coming of age during difficult economic times constrains the ability of many Millennials to form their own independent households,” the report said.

Of the Millennials who have formed households, 18.4 million households still have no children and another 11.8 million have dependent children ages 12 or younger, leading SBI to conclude that most Millennials “have the majority of their financial goals still ahead: career, home and family.”

“In the next 10 to 15 years, Millennials’ need for most financial products and services will be high—especially for credit and protection from income loss,” the report said. “To achieve their financial goals (such as a home purchase, funding children’s educations, and successful retirement), they need to implement savings and investment strategies early; time is the most important resource Millennials’ have to achieve their goals.”

Affluent Millennials, not surprisingly, tend to be more satisfied with their household’s financial situation and are more likely to have a financial plan than non-affluent Millennials. Affluent Millennials also feel confident “they are on track to meet their goals.”

Because Millennials are relatively less trustful of financial providers and intermediaries, winning them over will take awhile. About one-third of Millennial households (those with incomes between $50K and $100K) are viable targets for financial-services providers, SBI said. They have enough cash flow to save and invest and their needs and assets will grow as they mature. The same is true for 38% of non-affluent Millennial households.

3Q2015 U.S pension buy-out sales again top $3 billion: LIMRA

In the third quarter of 2015 U.S. group pension buy-out sales reached $3.2 billion, according to a LIMRA Secure Retirement Institute sales survey. Following second quarter sales of $3.8 billion, this marks the first time consecutive quarters experienced $3 billion in sales.

Traditionally, pension buy-out sales tend to spike in the fourth quarter with far less activity in the first three quarters. In 2015, however, pension buy-out sales have eclipsed $8 billion for the first nine months of the year. This represents a 415% increase over the $1.53 billion in sales for the first nine months of 2014.

“For the last five years the number of pension buy-out contracts sold in the first three quarters has steadily increased,” said Michael Ericson, research analyst for LIMRA Secure Retirement Institute. “We’ve seen 195 new contracts so far in 2015, compared to 159 contracts in the first nine months of 2014.”

While the trends show more small and medium sized companies seeking pension buy-outs, a single “jumbo” deal by a corporate giant can significantly influence sales. For a recent example, Kimberly-Clark’s pension conversion in June contributed to the $3.8 billion quarterly sales — a record for second quarter sales.

Years of low interest rates and increasing premiums charged by the Pension Benefit Guarantee Corporation has compelled more organizations to consider transferring their pension risk to a group annuity. To date, 13 financial services companies provide group annuity contracts for this market.

“Fourth quarter usually sees a large increase in pension buy-out sales,” said Ericson. “Based on our tracking, we think fourth quarter and full-year sales in 2015 will finish strong.” LIMRA Secure Retirement Institute publishes the Group Annuity Risk Transfer Survey every quarter.

Warren Whitepaper Missed the Mark

Posted on November 12, 2015 by Kerry Pechter -

A stock character of certain gothic novels is the crazy aunt locked in the attic of a sprawling manor—a noble clan’s guilty secret. Sometimes, in an ironic twist, the aunt turns out to be the only sane and rich one in the family, who’s been victimized by her scheming relatives.

In the family of annuities, the “crazy aunt” is the indexed annuity. Its “attic” is the state-regulated insurance marketing organizations and the agents they run. Its craziness involves its “Wild West” sales culture and predatory 7% commissions. But it’s tolerated because it generates a lot of revenue. It’s also an easy target for consumerists.

Senator Elizabeth Warren of Massachusetts, the scourge of the financial services industry, recently exposed the tawdriest side of the indexed annuity business in a well-intended but repetitive and somewhat misdirected white paper whose cover drawing, incidentally, depicts an English castle with a crenellated tower—tailor-made for a crazy aunt.

I won’t bash Warren here—the world needs a few crusaders—but I do think she missed the mark.

First, she indiscriminately smeared all annuities, which doesn’t serve the public well. Second, she obsessed about the trinkets (e.g., NFL Super Bowl-type rings) and junkets (e.g., to the Ritz-Carlton Aruba) that annuity manufacturers use to incent and reward producers.

Warren (right) sent letters to the CEOs of 15 top annuity manufacturers and asked them to enumerate the items of non-cash compensation that they offer distributors and agents to get them to sell their products, typically indexed annuities. Only two of the manufacturers offer no prizes; the other 13 listed their Bahamian golf outings, Tag Heuer watches and other premiums.

The availability of these non-cash incentives seems to shock the senator. Perhaps she’s not familiar with sales cultures. A sales career is not for the squeamish. It may be best suited to the young. (The incentives remind me of the Schwinn bicycles and Daisy air rifles that, at age 11, I tried to win by flogging Wallace Brown greeting cards and tins of White Cloverine brand salve door-to-door.) Yes, these incentives are an embarrassment to an industry that wants to appear high-minded and public-spirited. Warren would like to see them disclosed.

But the junkets are a sideshow. If Warren had dug deeper into compensation practices in the annuity distribution channels, she might have discovered more complex problems. She would have learned that annuity manufacturers and distributors have a long history of cooperating in ways that minimize competition between products and channels and keep clients from seeing all their options in one place.

Academics claim, and I agree, that a combination of income annuities and investments can deliver the most efficient blend of downside protection and upside potential for many retirees. But these types of solutions, validated by countless research studies, continue to fall through the cracks between existing advisory channels—channels whose walls are made rigid by engrained (and ripe for disruption) compensation practices. Warren thinks advisors should disclose their non-cash incentives. I wish more clients could see the powerful solutions that, in the status quo, few advisors have any incentive to show them.

MetLife survey elicits plan sponsor views on stable value funds

New Genworth tool prevents “NIGO” applications

Mark Madgett to lead New York Life agency division

TIAA-CREF survey shows impact of advisors

AARP and friends fight move to tax retirement income in Illinois

Different folks want different (benefit) strokes: MassMutual

Public pensions still recovering from Great Recession

Genworth launches uncapped FIA crediting strategy

DTCC launches ‘Data as a Service’ (DaaS)

John Hancock enhances mobile app, ‘MyLifeNow’

Witherow to lead Voya’s large plan DC business

MassMutual buys tool that shows impact of low savings rates on employers’ bottom lines

‘Family offices’ know what the ultra-wealthy want: Cerulli

What is the purpose of money, Thrivent asks

Millennials: On the cusp of big financial decisions

3Q2015 U.S pension buy-out sales again top $3 billion: LIMRA

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