Demand forces Jackson National to halt VA exchanges temporarily

Jackson National Life Insurance Co. plans to suspend 1035 exchange business into its variable annuities with living benefits, in reaction to what the firm calls “strong demand.”
The halt on 1035s and qualified transfers of assets into the insurer’s variable annuities will start at 4 p.m. ET on Friday and run until mid-December.
Jackson will resume taking exchanges on Dec. 16, according to an Oct. 22 filing with the Securities and Exchange Commission.
The block will affect only transfers into variable annuities with guaranteed living benefits. Jackson’s line of fixed and indexed annuities won’t be affected, nor will its EliteAccess variable annuity, which doesn’t have a living benefit.
Hot sales are a major factor behind the decision.
“Strong demand for our variable annuity products compelled Jackson to manage new business volumes near the end of 2012, and the same is true for 2013,” Mike Wells, president of the insurer, said in a statement.
Melissa Hernandez, a spokeswoman for Jackson, declined to share the insurer’s sales goals for this year.
Last year, Jackson blocked 1035 exchange business from Nov. 13 until Dec. 15.
Back then, Jackson said it had about $1 billion left in remaining capacity for the rest of the year.
In general, sales via 1035 exchanges make up a large portion of VA sales, particularly when compared with sales using new money.
For instance, during the second quarter this year, total sales of variable annuities hit $37.3 billion, but withdrawals and exchanges totaled $1.65 billion, according to data from Morningstar Inc.
“1035 exchanges constitute a large percentage of sales. [Halting exchanges] is an effective way to control inflows without saying that you’re not involved in the business,” said Tamiko Toland, managing director of retirement income consulting at Strategic Insight.
“I think it’s reassuring that they’re not just open spigots and that they’re being somewhat selective on their business, but it’s annoying,” said Mitchell Kauffman, managing director of Kauffman Wealth Services.
He noted that he has one client who is moving from another insurer to a Jackson contract. There are three days left to wrap it up.
Jackson isn’t the only company to curb volumes by blocking 1035 exchanges: Protective Life Corp. made a similar announcement in May. Protective’s suspension of exchange activity is still in place, according to the insurer’s spokeswoman Eva Robertson.
Halting exchanges can actually be a more effective way to slow volumes than making products less appealing by ratcheting down on roll-ups or changing underlying investments, Ms. Toland said.
Blocking exchanges turns off the tap to inflows, while making product adjustments relies on supply-and-demand dynamics and can backfire if other insurers change their products to be even less appealing.