In a move to satisfy baby boomers concerned about outliving their retirement assets, Hartford Financial Services Group Inc. says it will add an optional lifetime income guarantee to nearly all its investment products in the next few years.
John Walters, an executive vice president and the director of the big Connecticut insurer’s investment products division, said it will focus a substantial portion of its marketing effort for the products on the bank channel. Banks already had contributed 30% of the Hartford retail investment product group’s $145.6 billion of assets under management at June 30, he said.
Hartford’s lifetime-income strategy goes beyond similar efforts by competitors, most of which have confined lifetime-income guarantees to a particular product or product set. This year, for example, Richmond, Va.-based Genworth Financial introduced its ClearCourse variable annuity, which lets employees invest in a portfolio of stocks and bonds but guarantees a certain level of lifetime retirement income regardless of market performance.
In February Nationwide Financial Services Distributors Agency, a division of Nationwide Financial Inc. in Columbus, Ohio, launched a variable annuity rider that guarantees payments for life, even if the contract value reaches zero. The rider, called Capital Preservation Plus Lifetime Income, allows customers to take withdrawals of 4% to 7% a year.
MetLife Inc., Manulife Financial Corp., Jackson National Life Insurance Co., Lincoln National Corp., and Allstate Insurance Co. introduced similar products last year, according to Financial Research Corp. in Boston.
Mr. Walters said Hartford established an in-house team this year whose focus is on researching and developing lifetime income benefits for the company’s investment products. Baby boomers are shifting their own focus from asset accumulation to income, making Hartford’s approach to retirement income needs essential, he said.
Hartford said it will start its first variable annuity with a lifetime income guarantee on Nov. 1. Income guarantees for products including life insurance are expected to follow, Mr. Walters said.
The bank channel will be a special target for Hartford as it expands its lifetime income offerings, he said. Its bank-dedicated wholesalers have worked to ensure that bank sales representatives are well-versed in Hartford’s increasingly complex annuities, he added.
“We train our marketing people to make sure our story is going to be understood,” Mr. Walters said.
The company hopes its strong brand identity and high grades from ratings agencies will give it an advantage in the lifetime benefit space, he added. Hartford Financial Services is graded A-minus, a strong investment grade rating, by A.M. Best, an Oldwick, N.J., ratings agency, and the subsidiary Hartford Life and Annuity Insurance Co. is rated A-plus, which indicates superior financial strength.
“For lifetime income benefits, some things matter that may not matter in a standard investment decision,” such as the insurer’s financial strength and its brand visibility, Mr. Walters said.
Investment flexibility is also important for customers who are seeking lifetime income benefits, he said. Customers may seek different underlying investment mixes based on their financial goals and risk tolerance, he said.
Asset allocation funds are another strategic initiative for Hartford, Mr. Walters said. After the bear market of 2001 and 2002, investors became more aware of the importance of diversifying their portfolios, he said. Asset allocation funds make this easier by offering built-in diversification, with underlying investments typically allocated according to the investor’s stated risk tolerance or estimated retirement date.
The preallocated fund may be particularly well-suited to sales through the bank channel because it is relatively easy to understand and offers automatic portfolio diversification, Mr. Walters said.
“Platform reps may not have longstanding relationships with customers,” he said, and simplified investment options such as asset allocation funds may raise the customer’s comfort level.
Hartford rolled out four preallocated target retirement funds on Oct. 5. The funds of funds are designed for investors who expect to retire during or near the fund’s target year, and the portfolio allocations become more conservative over time through heavier weighting in fixed-income funds.
