Massachusetts Mutual Life Insurance Co. breaks into the investment-only variable annuities market just as the products bolster an otherwise lackluster VA market.
MassMutual Capital Vantage, launched Friday, is the firm's first IOVA. These annuity contracts, also referred to as investment-oriented or investment-focused variable annuities, are stripped-down versions of more traditional VAs, which offer more expansive features such as living benefit riders.
Investors typically choose IOVAs for their lower price tag, broader investment options, and the fact that the investments are tax-deferred. These features are expected to entice more investors to sign up.
“This is sort of the next wave of variable annuities,” said Gregory Olsen, partner at Lenox Advisors Inc.
Through Capital Advantage, investors have access to more than 50 funds across traditional fixed-income and equity strategies, asset allocation funds, and alternative asset classes such as hedged equity, tactical allocation and managed volatility. Aside from its proprietary funds, MassMutual offers funds from asset managers such as Oppenheimer Funds,
Fidelity Investments,
BlackRock and Ivy Funds.
The IOVA is available in a B and C share class, which costs 100 basis points and 145 bps, respectively. An optional return-of-premium death benefit is available on the contracts for an additional 35 bps.
Insurers have been
adding these types of death benefits to their IOVAs as a way to offer investors more choice.
IOVAs have enjoyed strong sales growth in the past few years as sales in the overall VA market have weakened. Through the second quarter of 2015, IOVA sales are up 93.8% — to $5.6 billion — versus the same quarter in 2011; that compares to a 15.5% decline in overall VA sales over the same time period, to $67 billion.
“[IOVAs] are the fastest growing segment of the VA space, because the companies don't have to offer guarantees, meaning they don't have to hedge it, so there's no risk to them,” Mr. Olsen said.
FIXED ANNUITIES
Fixed-indexed annuities
have gained much more traction than VAs recently, but IOVAs could balance that out, Mr. Olsen said.
IOVAs are a great mechanism to gain exposure to investments while mitigating taxes, and if a client wants to add alternative asset classes to a non-qualified portion of the portfolio, an IOVA is the most effective way to do so, according to Mr. Olsen. Taxes on alternative funds such as long-short and hedge strategies are typically higher than in other funds because of high turnover, he explained.
