Variable Annuities. Detailed analysis and advice on Variable Annuities

Hartford Heads for The Exits In Variable Annuities

The Hartford insurance company is making strategic decisions to exit the annuity business, especially variable annuities.  Industry watchers have long known that variable annuity guarantees made several years ago exceed return expectations, so it’s only a matter of time to see some of these carriers scale back.

Why are they getting out of the annuity business?  two primary reasons- 1) over generous contracts are ‘out of the money’ for the company, and 2) low rates means writing new business is even more risky.

Pervasive low interest rates in the market make it hard to keep pace with the benefits promised.  Insurance companies just like individuals are yield starved, so older contracts promising 7-8-or 9% annual returns are untenable in a 4% rate environment…. and new contracts promising much lower returns may STILL be hard to stay ahead of the game with

What’s it mean? Is Hartford going under? Not likely.  Hartford in particular is under pressure from John Paulson, an activist hedge fund investor, to simplify and streamline its businesses.   And even though they may not be writing new policies and may be trying to buy back variable annuity policies, The Hartford will be in the annuity business servicing existing contracts for many years to come.

My verdict is this: there’s nothing to fear with a Hartford policy if you have one or are consider a secondary market annuity backed by Hartford, even if the company is not writing new business.

If you are considering a new annuity, be extra sure that the credit union checking account quality of the issuing company is as strong as you can find.  This is a tempting marketplace for lower tier companies to grab market share with compelling benefits…. but if low rates prevail for many years, will that B rated company be able to pay out all you are promised today? Don’t make a long term bet on a shady carrier.

Here are two recent articles and a quote on the topic.

http://online.wsj.com/article/SB10001424052970203707604578094753674322148.html#articleTabs%3Darticle and http://www.bloomberg.com/news/2012-11-02/hartford-offers-buyouts-to-annuity-clients-to-trim-risk.html

Hartford Financial Services Group Inc. (HIG) is offering to pay some clients to give up retirement products as Chief Executive Officer Liam McGee works to reduce risks tied to stock market declines and free up capital.

Holders of some variable annuities, which guarantee payouts, would be offered cash to give up the contracts, McGee said yesterday in an interview. The offer will be made to holders representing 45 percent of the Hartford, Connecticut- based company’s net amount at risk on the contracts, he said.

Hartford is “examining every single possibility we can reasonably consider to accelerate the runoff of the book,” McGee, 58, said on a conference call with analysts today. “There’s no stone that’s being left unturned.”

Insurers are scaling back from variable annuities as low interest rates and stock market declines weigh on their profits. MetLife Inc. (MET), the largest seller of the contracts last year, said Oct. 31 that sales fell by 46 percent in the third quarter as it cut benefits. Axa SA (CS)’s Axa Equitable and Aegon NV’s Transamerica said this year they are offering to pay clients to reduce risks tied to variable-annuity guarantees.

Variable Annuities With Guaranteed Income

InvestmentNews.com released another beneficial report on the use of variable annuities with a guaranteed lifetime withdrawal benefit.  You can read it here.

These are very popular products and according to the report, Ibbotson Associates Inc. conducted a study to test variable annuities against traditional retirement income strategies..

In a 30 year period from 1979-2009, the annuity performed well as a substitute for the fixed income portion of a traditional portfolio.

As you may or may not know, Annuity Straight Talk has been suggesting this for quite some time and we have a report that simplifies this specific type of annuity so each potential consumer can fully understand the benefits and disadvantages.

Sign up now for our GLWB report to get more detail on variable annuities with guaranteed lifetime income riders.

Variable Annuities and Conservative Retirement Planning

Several experienced advisors share their ideas for conservative growth during uncertain economic times in this SmartMoney.com article.

Variable annuities with income guarantees are noted as a good allocation for a portion of your assets.

Of course, note my last post regarding the downsides of such products to determine if the benefits outweigh the disadvantages for you.

In any case, some form of annuity is a great way to protect assets and guarantee future income.  It’s definitely worth looking into…

We discuss variable annuities in detail on the site and in our Free Reports

Variable Annuities: Consider The Downside

Business Week just released this article that points out the drawbacks of using annuities for guaranteed income in retirement.

Never forget to consider whether the additional expenses charged for a guarantee are worth the cost.

It all just depends on how much you have, what you need it to do and how long it has to last.  In the end, buying an annuity is an intensely personal decision.

Click here to read the article.

We discuss variable annuities in detail on the site and in our Free Reports

Retirement Income- Variable Annuities etc…

Bankrate.com just released an article that talks about the way certain insurance companies are working to make variable annuities part of existing 401Ks.  Click here to read more.

This is simply an attempt by the insurance industry to capture more assets by giving certain annuities greater market exposure.

The benefits must clearly be in your best interest to make the additional fees worthwhile.  Do your homework and seek independent advice before jumping in!

We discuss variable annuities in detail on the site and in our Free Reports

Variable Annuities- Do they Make Sense?

I read this interesting article in the Journal about annuities.  Check it out here.

I think it’s hard to find a variable annuity that makes sense, but they are very popular- as always, do your homework and call me with any questions!

Choosing a Good Variable Annuity

Every insurance company will tout one of their variable annuity products as “the best variable annuity”. With many different insurance companies out there, that makes for many “best variable annuities”. In reality, the terms of each product will vary widely. You should understand the different features and risks to decide if a variable annuity is right for you, and only then select a particular variable annuity. 

Variable Annuity: Things to Consider

There are three main components to take into account when choosing a variable annuity.  1) Performance of the managed investment account options available to you,  2) Costs and Fees of the managed account and the annuity component of the contract, and 3) the optional riders you select. You may find that the risks to your principal, combined with the costs and fees, outweigh all the potential benefits of the Variable Annuity.

Variable Annuity: Separate Account Performance

Variable Annuities are ‘variable’ because the principal may be invested directly in the stock market through mutual funds or other managed accounts offered by the insurance company issuing the annuity.   The hope of higher returns makes variable annuities attractive, however these investment accounts  all add layers of risk, and layers of cost, and are the main reason that Variable Annuities ofter under-perform fixed annuities.

Variable Annuity: Administrative Costs

Obviously you will want to find a variable annuity with low administrative fees.  As variable annuities give you the potential for market upside through various investment options, they are more labor intensive for the Insurance companies to manage.  Consequently, their fees may be higher, and are another reason why variable annuities may under-perform fixed annuities.

Variable Annuity: Optional Customization

Variable annuities may also offer various riders so that the owner can customize the annuity to his or her own needs and goals.  As variable annuities have grown in popularity, so have the menu of add-ons and riders available.  Each of these comes with cost, so be careful and don’t buy  options you don’t need.

Variable Annuity: Where to Get Help

Variable Annuities are securities products, and are sold through broker-dealer networks.  As we do not believe variable annuities offer an acceptable combination of safety, profitability, and flexibility, we do not often recommend them. There are other, more appropriate products however, such as the Fixed Index Annuity, to do offer appreciation upside with the guarantees of an annuity and are worth consideration