Following the offer it made last year to buy out variable annuity (VA) owners of their death benefits, AXA Equitable has proposed a similar exchange, but this time it’s to convert Guaranteed Minimum Income Benefits (GMIBs) into extra cash for the policyholder’s account value.
In an SEC filing dated July 1, the offer covers AXA’s Accumulator, Accumulator Plus, Accumulator Elite and Accumulator Select variable annuity contracts issued between 2004 and 2009. The filing makes clear the offer is voluntary and provides detailed numbers on the amount a policyholder would receive if the buyout is accepted. In general, states the filing, if the contract account value increases, the amount of the offer decreases.
Discretion Winter, a spokesperson for AXA Equitable, said the company decided to make its latest offer after the response it received last year with its standalone death benefit rider swap offer.
“Following on the strong contract holder interest in our previous offer, we have decided to make our voluntary program available to a broader customer base. This voluntary, opt-in, no-fee program allows contract holders the option to cancel certain features of their contracts in exchange for an increase in their account value. Our commitment to meeting our promises to policy- and contract holders is unchanged. We will continue to offer and develop variable annuity products that provide retirement savings and financial protection solutions for our customers,” Winter said in a written statement.
Although she declined to provide any specific numbers, she said the response “exceeded expectations” and therefore, the company chose to broaden the buyout offer to the living benefits realm. She did point out that the SEC is still reviewing the offer and no formal letters have been sent to policyholders.
In the filing, the insurer further explains why it is making the offer, which it contends can benefit both parties. If a contract holder no longer needs the GMIB or death benefit, they can enlarge their account value while dispensing with the fees those riders incur. Conversely, AXA gets out from under providing these pricey riders in a low interest rate environment. “Providing the lump sum payments will be less costly to us than the amounts we are currently setting aside to guarantee the benefits,” AXA wrote in the SEC filing.
Tamiko Toland, managing director, retirement income consulting, at Strategic Insight, which tracks variable annuity modifications, said that such an offer would make sense for a policyholder who has adequate sources of income from other assets. “It gives them a way to monetize the benefits if it’s something they don’t feel they would use for income,” she said. “It’s definitely not for someone who really needs the income. If they were planning on using it that way, then I wouldn’t take the offer because it’s not that much additional cash.”
Hartford and Transamerica had proffered similar buyout offers in an effort to jettison benefits extended in more flush economic times that have now come back to haunt the insurers.
Such offers can give the appearance to the public as well as advisors that some insurers are not fully committed to the VA line, Toland said. However, she added that each insurer’s motivation is different. “To be clear, AXA is currently selling variable annuities with living benefits, they’ve been doing it consistently,” she said. “They did pullback, and are trying to emphasize other products or other structured capital strategies. They want to be judicious about what risks they have. For the insurance companies and particularly for the companies like AXA, this is a risk management tool. It’s not a sign of retreat.”
Yet it does mean carriers must do a better job of explaining to their distribution partners the whys and mechanisms behind these buyout offers. “While they may have certain actuarial benefits, [these offers] may potentially impact long-term business relationships and how their companies are being perceived,” Toland said. “There is a certain amount of risk for any company that goes ahead with these sorts of things and ultimately it comes down to their own communications. How is it they are talking about the offer? How are the advisors being educated on the potential value of it, and how they can talk to clients?”
For advisors, these buyout offers can often lead to a deeper dialogue with their clients. “Advisors are always in the process of reassessing a client’s holdings. So it could be part of a constructive conversation with the advisor.”