Variable annuities are being examined for contract language and insurer cost overruns
The variable annuity market is being examined over two recent concerns – contract verbiage in regards to contributions, and costly policyholder habits.
InvestmentNews reported that regulators are looking at variable annuity contracts to examine the language of the contract that might be used to limit or prohibit future contributions to the annuity without the policyholders’ knowledge or understanding.
Because variable annuities are benefit-rich, insurers are looking for ways to limit their own financial liability. InvestmentNews points to new restrictions on existing contracts implemented by The Hartford Financial Services Group Inc., which has placed restrictions on investments to existing account balances.
Insurers are also changing fee rates, which are allowed in most contracts but have to be watched to see if they are prohibitive to the policyholder in maintaining the policy.
“Some companies have provisions to make those changes, but there’s the question of how closely those changes are looked at by the insurance departments to make sure the charges don’t go up unreasonably,’’ said Ralph D. Spaulding, a principal at Hinman Straub PC, to InvestmentNews.
A fourth-quarter Spectrem Group survey of ultra high-net worth investors indicated insurance and annuities held the smallest portion of total assets, estimated at five percent of total assets. Those investors under 44 years of age were the most likely to invest in insurance and annuities, the research showed.
Companies providing variable annuities are finding themselves having financial difficulties because of a change in policyholder behavior. Moody’s Investors Service recently stated that “unpredictable policyholder behavior challenges U.S. life insurers’ variable annuity business’’, referring to lower than expected lapse rates among policyholders who are maintaining their variable annuity policies because alternative products are less attractive.
Such behavior requires more and greater payouts by insurers, and larger required reserves, than originally planned for. Thus, insurers are looking to raise fees and prohibit further investment to protect themselves.
The variable annuity market has decreased in recent years, as major insurers such as The Hartford, John Hancock, ING and Sun Life have gotten out of the VA business.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.