In an era where most annuity providers are
moving toward simplified, single-stream product offerings, Axa
Equitable believes it can offer growth and downside protection and
still keep the product understandable for consumers.
In what is believed to be a first in
the annuity market, Axa Equitable has built growth and asset
protection into a single offering.
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The US unit of the French insurer recently
launched Retirement Cornerstone, a variable annuity with a
dual-account investment platform that it hopes will change the way
that investors view the uses and benefits of variable
annuities.
Retirement Cornerstone is a tax-deferred
investment platform that, unlike a traditional annuity, supports
two interactive but distinct accounts. One account is focused on
the opportunity to maximise investment performance through some of
the most well-respected money managers, the other, an optional
account focused on retirement protection.
“Over the past 18 months or so, we began
working on a product that would combine growth potential with
guaranteed income,” Steve Mabry, Axa Equitable’s senior
vice-president of annuity product development, told
LII.
“Retirement Cornerstone represents a way for
investors to take advantage of the growth opportunities that are
out there while also providing downside protection for retirement
income.”
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By GlobalData‘Two-sleeve’ approach
In two distinct ‘sleeves’ – money
management and downside protection – Axa hopes to offer earnings
potential while calming jittery would-be investors concerned about
retirement.
The money management ‘sleeve’ offers access to
more than 90 investment portfolio choices across a broad spectrum
of asset classes and investment styles.
Most of the actively managed investment
portfolios carry top Morningstar ratings of four or five stars,
Mabry said, with some of the most well-respected money managers
delivered in a tax-deferred structure that may become increasingly
valuable if, as many expect, tax rates rise.
Meanwhile, the other sleeve provides a
guaranteed income benefit option that invests in asset allocation
and index portfolios.
Perhaps most important, to help anticipate and
protect against the impact of rising interest rates, the Retirement
Cornerstone has a new ‘roll-up’ rate declared annually at one point
above an average of the 10-year Treasury rate (the initial rate is
5 percent and can adjust to a maximum of 8 percent and never below
4 percent).
This roll-up rate is the annual percentage
increase to the benefit base, which is used to calculate a
guaranteed minimum income (or withdrawal amount). This innovation,
which Axa says allows the income benefit to rise in a rising
interest rate scenario, sets Retirement Cornerstone apart from the
competition.
Fear of inflation
“We ran focus groups as we were building
Retirement Cornerstone, and the fear of inflation and rising
interest rates are on everyone’s minds,” Mabry said.
“Equities volatility is still top of mind with
many clients.”
The dual-account platform provides an
opportunity for investors to pursue more aggressive investment
recovery strategies, while also giving the investor tax control, by
providing for tax-free transfers among investment portfolios.
Mabry said that it also allows the investor to
sweep cash tax-free from the long-term accumulation account to the
downside income protection account to build lifetime income
benefits and respond to changing needs and economic conditions.
“The client, working with their broker or
advisor, can easily increase the allocations to the allocations to
the guaranteed sleeve as market conditions change,” he said.
“It is a level of flexibility new to the
variable annuity market.”
Axa Equitable launched Retirement Cornerstone
in its proprietary channel in January, and is currently rolling out
to the third-party market. Mabry said that so far, overall, about
40 percent of allocations have gone to the growth sleeve, with 60
percent flowing to the guaranteed sleeve.
“Once you take a deeper look, you see that
clients are using all of the various components in a range of
different allocations,” Mabry said.
“We are really pleased with that, and with the
response to the product thus far.”
Mabry said that Retirement
Cornerstone's long-term accumulation account gives
advisers no shortage of options. It offers about 90 investment
portfolios, including sector funds, Mabry said, from between 20 and
25 asset managers.
Challenge from mutual
funds
In an era of tremendous volatility
that has placed unprecedented pressure on guaranteed-income riders
and forced some providers to eliminate guarantees altogether or to
raise prices, Axa Equitable’s move is a bold one, but necessary to
slow the flow of funds away from variable annuities and towards
mutual funds.
Second-quarter figures from the research firm
Kehrer-Limra showed that variable annuity sales rose 17 percent in
the quarter, compared with the first quarter, well behind the 55.9
percent gain posted by mutual funds. In the midst of such a flight
to safety, the two-sleeve approach aims to close that gap.
“The unique value of Retirement Cornerstone is
the simple way it can give people the confidence they need to once
again invest for growth, but without giving up the comfort of
having a reliable guarantee – all on one platform,” Mabry said.
“We see it as a single investment platform,
with a range of options and the ability to respond to the markets
quickly.”
Though Axa Equitable’s minimum investment in
Retirement Cornerstone is $5,000, Mabry said the insurer is seeing
average assets of around $100,000 moving into the product.
It is a younger market, particularly on the
growth sleeve, he said, adding that his unit’s work is hoping to
attract increasing numbers of the emerging affluent class.
“On the growth side of the product, we are
attracting clients around 45 years of age on average,” Mabry
said.
“We have much more of an investment story to
tell than we have been in the past, and we are really pleased with
that.”
