Brighthouse Financial, an operating segment of MetLife and one of the leading providers of annuity and life insurance solutions in the United States, which is in the process of separating from the parent company via a spin-off, has recently expanded its suite of Shield Level Selector annuities with the launch of the Shield Level 10 annuity which will be distributed by Wells Fargo. SRP spoke to the firm’s chief distribution and marketing officer, Myles Lambert (pictured), about the new range, the increase in the use of volatility control indexes and how the US annuities market has been impacted by the upcoming Department of Labor (DoL) Fiduciary rule.
What does the new Shield Level 10 annuity add to your existing range of indexed annuities? What other index annuities does Brighthouse offer?
Shield Level 10 provides a streamlined set of features and options and is available only in one year terms. In addition to Shield Level 10, Brighthouse Financial offers two other index-linked annuities: Shield Level Selector and Shield Level Selector-3 Year. Those products differ from traditional indexed annuities in that they can offer options with more upside potential through a higher cap rate, but only provide protection for a certain level of negative index performance.
According to Limra’s Q4 2016 survey, index annuity sales hit record $60.9bn in 2016, while the use of volatility control indices used in the fixed index annuity arena has grown from two in August 2014 to over two dozen, with another dozen indexes filed and waiting. What’s your take on this and what are the reasons for this trend?
I think that the current low interest rate environment has led many consumers to look for more upside opportunity than non-risk managed indices currently provide. This, in turn, has led to more innovation in the managed volatility index space. Our Shield Level annuities can play a similar role: they offer clients more upside potential than traditional fixed indexed annuities, but do so through a traditional market index.
Is regulation (DoL Fiduciary rule) impacting the growth of the index-linked segment of the market?
Although it is premature to say if, and in what ways, the Dol Fiduciary rule is impacting the growth of index-linked annuities, we believe our transition to an independent distribution system will enhance our ability to operate most effectively within the rule’s emerging requirements.
What can prop indices/strategy indexes (risk control) add beyond the usual market cap indexes such as the S&P 500, Nasdaq 1000, etc.?
Currently, our Shield Level products focus on popular market indices that are more transparent and well known to our customers. We are continuously evaluating new product options and features as we strive to meet the evolving needs of our customers, and may choose to expand our available indices in the future.
What’s the criteria when choosing underlying indexes?
We value simplicity in product design, and believe simplifying the selection of indexes helps consumers choose an index they may be more familiar with.
What’s your 2017 outlook for the index linked annuities space?
We believe index-linked annuities, such as Shield level Selector, will play an important role in financial and retirement planning in 2017 as consumers strive to capture upside potential in equity markets, while protecting themselves from a portion of potential market losses. We also believe that advisors like the simplicity that these products provide and believe that will continue to drive growth in this product line.
Do you work with investment banks to hedge these index-linked annuities?
We are in the process of transitioning to our new VA hedging strategy [the] details [of which] can be found in the latest amendment of our Form-10 filing with the SEC
According to Brighthouse’s Form-10 filing MetLife’s Global Risk Management Department (GRM) contains a dedicated unit, the primary responsibility of which is the development of product pricing standards and independent pricing and underwriting oversight for MetLife’s insurance businesses.
Further important controls around management of underwriting and pricing processes include regular experience studies to monitor assumptions against expectations, formal new product approval processes, periodic updates to product profitability studies and the use of reinsurance to manage our exposures, as appropriate.
‘We enter into reinsurance agreements primarily as a purchaser of reinsurance for our various insurance products. We participate in reinsurance activities in order to limit losses, minimize exposure to significant risks, and provide additional capacity for future growth. We enter into various agreements with reinsurers that cover individual risks, primarily on a coinsurance, yearly renewable term, or excess basis. These reinsurance agreements spread risk and minimize the effect of losses. The extent of each risk retained by us depends on our evaluation of the specific risk, subject, in certain circumstances, to maximum retention limits based on the characteristics of coverages. We also cede first dollar mortality risk under certain contracts. In addition to reinsuring mortality risk, we reinsure other risks, as well as specific coverages. We obtain reinsurance for capital requirement purposes and also when the economic impact of the reinsurance agreement makes it appropriate to do so.’
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