Desjardins Insurance is coming back into the guaranteed lifetime withdrawal benefits (GLWB) market after having pulled out of the business in April 2012. The insurer reconsidered its assumptions in light of both new capital rules and persistently low long-term interest rates before launching its new Helios2 product.Shaken by market volatility, capital rules, and low interest rates, the industry reduced its famous guaranteed withdrawal benefit, on average, from 5% to 4%. This base percentage is the market’s unit of measurement, and represents the guaranteed amount that retirees may withdraw from their GLWB product annually beginning at age 65. After two years of reflection, Desjardins Insurance has returned with a modified product, offering a guaranteed lifetime withdrawal benefit of 4.1% for customers aged 65 to 69. The insurer had offered 5% to this age group in its old product.
Compelled to return
Desjardins felt compelled to come back into the business. The insurer said it found competitors were seeing a strong demand for the product, both from retirees and from those who are on the cusp of retirement. “Our customers in general, and those whose deposits were limited in their old Helios products, were buying their GWBs elsewhere or were giving up on them,” comments Jean-François Girard, director of business development of savings products at Desjardins Insurance, in an interview with The Insurance and Investment Journal’s sister publication FlashFinance.ca.
Done away with because it was no longer sustainable, the old version of Helios has been replaced by a new and much lighter product, says Girard. “We took the last few years to better understand and validate our assumptions and models,” he explains. “We wanted to make sure we came back with something that differentiates itself in the market, as well as being more sustainable.”
Helios2 is thus distinguished by a variable bonus. Instead of the traditional 5% bonus paid to the customer for each year in which he makes no withdrawals, Desjardins now offers a bonus that is calculated based on the Canada 10-year bond rate, plus 1%. The insurer has set the floor of the bonus at 2.5% and the cap at 6%. “The floor protects the customer while the ceiling allows for the sharing of risk between the insurer and the client,” says Girard. He points out that, with 10-year bond rates currently at 2.5%, it could take some time for the bonus to reach the ceiling.
In addition, the insurer has pushed the earliest date for guaranteed withdrawals back from age 50 to 55. “Few people retire before age 55. It would have been difficult to design an attractive guarantee for this segment,” explains Girard. “As a matter of fact, one should expect the average retirement age to keep increasing.”
The product used to be available to those who made a minimum deposit of $5,000, but Desjardin’s new guaranteed lifetime withdrawal benefit product requires a minimum deposit of $25,000. The offering is further divided between Series 6 (i.e., the one with a minimum deposit of $25,000) and Series 7 which requires a deposit of $250,000. “These payout vehicles are unsuitable for deposits of less than $25,000. As for Series 7, it is something new that allows us to focus on clients who are looking for a package with reduced fees.” Helios2 offers the Series 7 with a management expense ratio that is, on average, 0.5% lower compared to that of Series 6.
All of the Helios segregated fund guarantees have been revamped in Helios2, with some variations. The 100% maturity guarantee is no longer available. The guaranteed lifetime withdrawal is only available with a 100% guarantee at death and a 75% guarantee at maturity. The launch of Helios2, which took place on Feb. 24, will have no effect on existing Helios contracts. Clients can continue to make additional deposits within the agreed limits.
