It was an active quarter for changes in variable annuity (VA) contracts. According to a report from Morningstar, carriers filed 168 annuity product modifications in the second quarter, a steep rise from the 59 changes undertaken in the first quarter and slightly above the 162 filed in the first quarter of 2011.
All in all, 24 carriers made some type of new release, signification alteration or product closure in the quarter. Making up the largest share of changes were closed contracts, followed by VA product launches and new VA benefits. Riversource, Protective and AXA filed the most changes in Q2.
Driving the changes was the persistent low interest rate environment that is forcing carriers to re-adjust pricing, according to John McCarthy, product manager, annuity solutions, for Morningstar, and author of the report. "Carriers are dealing with the reality that living benefits are costly to maintain, so activity is being sought elsewhere as the wait continues for interest rates to rise," writes McCarthy in the second-quarter commentary.
The report details several of those adjustments. For example, Hartford reduced the withdrawal percentages on their Future5 Lifetime GMWB (guaranteed minimum withdrawal benefits) benefits from 5% to 4.5% (single and joint), and raised the fee on the Future6 single from 85 basis points to 105. As of July, Allianz cut the withdrawal percentage on its Income Focus Lifetime GMWB benefit to 3.75% for a single, 64-year-old policyholder from 4.25%.