MetLife, Other Insurers Face Tough Annuity Calls

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With the Department of Labor annuity ruling, the industry and retirees will have to wait and see what happens next. The 1,100 page ruling leaves insurance agencies like MetLife and others determining if they will fade away from annuity offerings or adapt to the new exemption-free offerings. If they opt to adapt, which most experts appear to believe will be their course of action, variable annuities could prove much harder if they switch to a fee-based system.

As ThinkAdvisor notes,

“As a result, many anticipate that, rather than attempting to comply with the strict standards imposed by the pending DOL rule, firms will switch from a widely applicable commission-based model to a fee-based model that charges an asset-based fee. While in some cases this could reduce the overall cost of the product, generally charging an annual fee rather than an upfront commission could still result in a product that costs the same amount over time.

However, it is also possible that many of the currently available riders to annuity products will be eliminated in order to produce a product that charges a lower overall fee, as advisors evaluate whether the lower cost, rider-free product can ultimately serve the same client needs over time.”

Many expect some form of the best interests contract exemption will be included in the final rule. So, the market is likely to adapt in the coming months. However, what sort of adaptation remains uncertain–a status that many expect to remain the same until at least the fall. Eric T. Steigerwalt, chairman, president and CEO of MetLife Insurance of Conn. said during a Q1 earnings call that, “Maybe four months or five months from now, we’ll have a better view of that, but right now given the fact that this (DOL rule) is almost 1,100 pages, we’re just going to have to wait and see what a number of distributors are going to do.”

So, the current situation appears to be a wait-and-see scenario. What happens this fall should dictate what level of adaptation the market makes. It would be unlikely to see annuities be phased out, but many options are still in play.

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