‘RIP’ GMWBs? Who will miss these lose-lose products?

There were a number of recent articles indicating that insurance companies are exiting the GMWB business. The latest in the past week were MSN Canada’s  “Insurers back away from “income for life” products”Benefit Canada’s   “Say goodbye to GMWB as you knew it” and WSJ’s  “Hartford says goodbye to annuities”. According to these articles (and references therein) Desjardin, Standard Life, Industrial Alliance, Canada Life, Transamerica, ManuLife have suspended sale of new policies and or increased premiums and/or reduced percentage guaranteed payouts on new/existing policies.

In MSN Money (Canada) EverydayMoney’s “Insurers back away from “income for life” products” Gordon Powers writes that “The insurance industry has struggled to keep up with the long haul commitments associated with these products, as interest rates have remained at historic lows and stock markets have simply proven too volatile. At the same time, regulators have increased the amount of capital insurers must keep on their books, further limiting their ability to take on risk and driving down their stock prices as a result.”

So as suspected the GMWBs turned out to be toxic not just for investors/retirees who bought them but also for the insurance companies which sold them. The product all-in cost had at least two main components: very high cost mutual (segregated) funds 2-3%/year fees plus about 1-1.5% annual insurance premium for the age dependent guaranteed of minimum lifetime payout of about 5% of contributed amount (ratcheted up if remaining assets after withdrawals and costs, increased relative to original contribution).

Given the very high all-in cost structure of most GMWBs, it meant that the investors’ hoped upside, was just that, the triumph of hope over reality. As it turned out, due to a combination of the stock market crash and low-interest environment, the insurance premiums were insufficient to meet regulatory reserve requirements (and probably lifetime income promises).

Who will miss these products? Probably only those who were collecting very high sales commissions. GMWBs are a perfect example of complex/opaque/expensive financial industry products designed to be sold not bought. As with food, the more “processed or productized” they are, the lower their nutritional value!

You can read my recent blogs (which also refer to earlier blogs) on GMWBs at GMWB III – Q & A: Are GMWBs more desirable investments in “post-2008” context of low interest rates? and Vanguard GLWB vs. other decumulation strategies . Based on the products I have seen, Vanguard’s GMWB product was the only one I found worth considering, but this is only available in the U.S..



  1. Peter · · Reply

    Look at Jefferson National’s low cost products – even greater choices of low cost sub accounts ( incl DFS product). Im not a shill for them but took a Portfolio Management Class at Bentley University and the RIA Professor cited this product.

  2. I am interested…can you provide a specific reference/link on the products you are referring to?

  3. Peter · · Reply

    and I meant DFA product …. heres the story

    1. Peter,
      I looked at the two references to the DFA+Monument products with Jefferson, but I am still struggling to understand what exactly is the nature of the product. Is there a document similar to Vanguard’s GLIB document “Steady income with growth potential and market protection” http://www.vanguard.com/pdf/z070.pdf which explains What are the guarantees by age group, what is the insurance cost, what are the DFA funds/portfolios permitted, liquidity,etc…and what are the overall all-in-costs in addition to the fee-only advisor cost? If there is a document describing these characteristics?

  4. Peter · · Reply

    I am not an advisor, just took the class where the RIA Professor cited this product as one he used that was a. very low cost ( and he abhors broader range of high-cost sold variable products)and b. had broad diversity of sub accounts beyond Vanguard. Since its advisor-sold maybe they only make detailed information available to advisors? Sorry I cannot provide more. I’d saved the info in case I ever needed it….

    1. Hi Peter,
      Now that you pointed out the availability of these, I’watch for them…thanks for the lead.

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