No Time for Nostalgia. AXA Equitable prides itself on being a retirement savings industry pioneer. Our innovative variable annuity products have been at the industry forefront, helping Americans prepare for a financially secure and dignified retirement.
In 1996, AXA Equitable invented the first guaranteed minimum income benefit. It wasn’t long before other companies followed suit, and guaranteed living benefits emerged as the dominant benefit rider on variable annuities. The industry soon entered what is often referred to as a features and benefits “arms race” between competitors, all vying to offer the most attractive and robust products on the market.
The market crisis in 2008 forced the industry to take a fresh look at one key metric with a magnifying glass—risk. The high roll-up rates, annual resets and aggressive equity investments, while attractive to clients, pose risks which are extremely difficult to manage in a volatile equity market and low interest rate environment. These unfavorable product economics, along with the rigorous standards and increased supervision of the new regulatory changes sweeping the industry, has placed particular strain on companies which offer highly regulated products like variable annuities. As a result, companies have been forced to demonstrate their ability to be nimble in their product approach, adjusting appropriately to the unprecedented economic environment and heightened regulatory landscape. This has not been an easy task, demonstrated by the exit of many variable annuity and life insurance companies over the past three years.
Insured retirement products continue to play a valuable and integral role in retirement planning today. Despite the fact that some of the features and benefits on variable annuity products are far less robust than they were in 2007, variable annuity total net assets reached a new all-time high of $1.62 trillion during the third quarter of 2012, up about four percent from $1.56 trillion in the second quarter. This demonstrates the attractiveness of products that offer our customers the assurance and certainty of a guaranteed lifetime income stream. This offer remains highly valued, especially as Americans face prolonged job insecurity, market volatility, depressed real estate assets and low interest rates.
But our industry’s success must be sustainable. At AXA Equitable we’re committed to being a sustainable success story, offering clients a suite of products that accommodate individual client preferences in changing economic environments. Along with our traditional variable annuity, we’re applying risk management expertise to create new strategies for navigating today’s economic challenges.
We introduced a new accumulation variable annuity product—Structured Capital Strategies—for instance, that targets risk-averse and fee-conscious clients who seek equity exposure and a certain level of downside protection. With this type of new tool, clients have access to the growth potential of participation in equity or commodity indexes, with a performance cap and downside buffer.
A performance cap limits an investor’s return in certain up markets and, through a buffer, AXA Equitable absorbs up to a certain amount of loss with the investor covering the remaining portion of the loss. The balance between a growth cap and a partial downside protection buffer can help stabilize returns and reduce the emotional toll of volatility. By reducing or, in some cases, eliminating losses, it can offer weary clients the protection needed to remain invested, even during periods of volatility.
Inflation is also a key concern for savers today; interest rates will eventually revert back to historic norms, and clients need to be invested in a vehicle that will increase their income along with these rising rates. When it comes to diversification, we’re working with advisors to help them poise their clients to take advantage of such rising rate opportunities.
With our Retirement Cornerstone variable annuity, we offer a guaranteed income benefit tied to the performance of Treasury rates. Such floating rate products can help clients take advantage of the prospect of rising rates. For investors looking to put money to work immediately, special temporary rate holds can present an attractive way to ride through today’s low rate doldrums and take advantage of the potential for rising rates in the future.
An Evolving Employer-Sponsored Landscape. Parallel evolutions are occurring in the employer-sponsored market, offering the industry dynamic growth opportunities. The biggest changes began in 2008 when new IRS regulations were introduced in the 403(b) markets. These regulations brought to the public sector the type of oversight that had only previously existed in the private sector for 401(k) plans for many years.
Retirement planning decision-making in the public market had always been relatively simple because of the availability of defined benefit plans. Individuals worked a certain amount of years, they retired, and they received a pension. These assumptions are changing rapidly, as the ownership for retirement planning now falls to the individual. This could be seen as a positive change, because individuals can now decide how much money to defer, what risk level they want to take, and what products they want to use for retirement income. It is our industry’s job to help public employees get comfortable with the change through education, planning and product strategies.
Because the need for supplemental defined contribution group variable annuity plans in the public sector continues to increase, it is important for plan providers to provide access to these plans to help public employees build and serve our communities (educators and staff in public schools, colleges and universities; hospital and municipal workers; and non-profit employees) plan for and reach their retirement goals in a retirement reality that has changed and continues to evolve.
Because traditional defined benefit plans are becoming a thing of the past and the 2008 IRS regulations have changed the landscape of the 403(b) marketplace for plan sponsors and their employees, AXA Equitable works each day to educate public sector employees about the importance of retirement planning and the benefits of participating in 403(b) plans. People need to take increased responsibility for their own retirement savings, and that starts with becoming educated on how defined contribution plans work as part of an overall retirement income strategy.
Fast changing economic and market conditions continue to create new challenges and opportunities for retirement savers and our industry. The pace of change does not allow time for nostalgia. AXA Equitable is focused on the future and continuing to be at the forefront of positively reshaping the retirement savings business—driving competitiveness, developing wholly new concepts to augment our existing offerings, and expanding strategic partnerships—to help Americans plan for and achieve a financially secure retirement, with the dignity they deserve. [NBL]
