Low interest rates and long-term volatility have claimed another victim. On May 18, SSQ Financial Group halted sales of Astra Guaranteed Income II (AGI II) – its guaranteed lifetime withdrawal benefit product.
On May 22, the Quebec insurer replaced AGI II with Astra Guaranteed Income 2.1, a new version of the product that will offer a lower 4% guaranteed lifetime withdrawal amount, compared to the 5% that was available under the old product. In the new version, SSQ is also eliminating the feature which guarantees that, at a minimum, the principal amount can be withdrawn over 20 years.
Recently, other insurers have also suspended or modified their guaranteed withdrawal benefit (GWB) products (see May 2012 edition of The Insurance and Investment Journal, pages 20 & 21).
“We are not living in a parallel universe,” comments Marc Trépanier, vice president of business development for investments and retirement at SSQ. “The same factors that affect our competitors affect us as well,” he said in an interview with The Insurance and Investment Journal’.
The previous version of the product was no longer viable because of historically low long-term interest rates, which have been exacerbated by new regulatory capital requirements. Mr.Trépanier suggests that the impact would have been less if Canadian regulators had taken insurers’ hedging programs into account when formulating their requirements.
“As a result, we must maintain capital reserves at a level higher than normal. Currently there are global pressures from the industry to encourage authorities to recognize these hedging programs,” he says.
SSQ says it is more comfortable with the new version of the product. “Coupled with our hedging program, it will ensure the sustainability of the guaranteed lifetime withdrawal benefit product at SSQ,” says Mr. Trépanier. The hedging program fully protects the insurer against market declines, he says. However, he points out that the program will increase the cost of the product by 0.10% to 0.25% depending on the fund. “AGI remains competitive and unique in the market,” says Mr. Trépanier. The increase in fees will take effect on June 4, for both the original AGI II product, as well as for the new version.
From this date, contributions to AGI II will be limited to $25,000 per year. Before the change, each investor was able to deposit up to $500,000 in his account.
In addition, Mr. Trépanier says that some enhancements have been made to the new product. He points out that SSQ is one of the few players that still allows up to 90% exposure to the stock market in its GWB. Also, AGI 2.1 introduces the possibility of making withdrawals before age 65, something that the old product did not allow.
The 4% guarantee begins at age 65. A policyholder who begins lifetime withdrawals at age 55 will be entitled to a guaranteed withdrawal rate of 3%. This guarantee increases to 3.5% for those who begin withdrawals at age 60. It is 4.25% for those who retire at age 70, and 5% for those who retire at age 75.
In its message to advisors, SSQ pointed out that other features available in the old product will remain intact, including the death benefit, the automatic resets every 3 years and the 5% bonus.