MassMutual weighs future in VA marketplace

Following the departure of a major annuities expert and the elimination of some variable annuity riders, Massachusetts Mutual Life Insurance Co. is mulling the future of its role in the VA marketplace.

“The challenge for the next few years, given the changing environment we're in today, is to figure out how the ideas fit in the context of products that agents and [representatives] want to use, and fit the needs of the consumer,” said Drew Dickey, a senior vice president and head of the retirement income business at the Springfield, Mass.-based carrier. “We're trying to assess [whether variable annuities will] be an evolutionary strand of product that dies off or mutates, and what the opportunities are, going forward, for different ideas that are more prudent for a highly rated company that needs to maintain prudent risk posture.”

In recent months, the company has been following the path of a number of its peers by pulling back on variable annuities and trimming costs via layoffs. The latest changes to MassMutual's VA lineup include the March 31 decision to suspend sales of two benefit riders that were available with the Transitions Select and Evolution VA contract.

Prior to that, the company suspended sales of its guaranteed-income-plus rider, which also came with Transitions Select and Evolution.

The latest event to unfold at the insurer was the announced retirement this month of Jerome S. Golden, president of income management strategies at MassMutual, who had been with the insurer since 2005.

Aside from masterminding a number of the rider concepts in the VA market, he led a research study that revealed that using a fixed-income annuity with a retirement income account could provide more long-term wealth for investors than a bond-and-equities portfolio alone.

“NEXT-GENERATION IDEAS’

“He had a team of about five people who were research and development, working on next-generation ideas,” Mr. Dickey said. Mr. Golden reported to him while at MassMutual.

MassMutual's Retirement Management Account, a program that combines a mutual fund portfolio along with an income annuity inside an individual retirement account, was also the brainchild of Mr. Golden, who developed it in 2005 while he was at Golden Retirement Resources Inc. in New York, a firm that MassMutual bought that year. The program, provided through the company's investment adviser reps, aimed to meet retirees' need for guaranteed income and growth.

Although Mr. Dickey said that the changes in the company's approach toward variable annuities and Mr. Golden's departure were unrelated events, observers hypothesized that the occurrences point to a shift in course at the insurer and throughout the industry.

For instance, the concept of the retirement management account was viable but limited in the sense that it focused on the registered investment adviser channel, which restricts scale and profitability.

“By restricting yourself to a specific channel, it becomes difficult to generate the kinds of scale needed for applications to be successful,” said Garth A. Bernard, president and chief executive of Sharper Financial Group, a Boston consulting firm.

“I think it comes down to yield. How much are you selling per producer?” he said. “If you're not achieving critical mass, it becomes an expensive proposition.”

As for the decision to pull back in the annuity space, all products that have exposure to consumer sentiment, including mutual funds and variable annuities, have been slammed in recent months. By re-ceding from the VA space, MassMutual can hold on to the capital it needs to maintain its high ratings, said Tamiko Toland, editor of Annuity Insight, a publication from New York-based mutual fund research firm Strategic Insight Mutual Fund Research and Consulting LLC.

“My understanding is that they want to focus on serving their agents, and it seems like they're focusing on areas other than annuities for growth,” she said. Fixed annuities and whole-life insurance are possible areas of focus, Ms. Toland added.

FIXED PRODUCTS

Although favorable yield curves and consumer paranoia about banks play a large part in growing demand for fixed products, the insurer still needs to weigh what is in its future, Mr. Dickey said.

“Strategically, longer-term, [fixed products are] not the whole answer,” he said.

“It depends on what makes prudent sense for us. We may see products evolve differently over the course of the next year, and that needs to be considered in evaluating whether these products are prudent to offer,” Mr. Dickey said.

The pullback on the living benefits isn't a sign of changing the company's strategy but rather a reaction to the market.

Changes that are certain to take place at MassMutual include a renewed focus on distribution through career agents rather than broker-dealers and banks, Mr. Dickey said.

As for the idea that MassMutual will exit the annuities business, he said, “I think if people are coming away with the idea that we're not committed to providing retirement-income products to customers, then that's a big mistake.”

E-mail Darla Mercado at [email protected].