Sun Life Financial has just launched a new line of segregated funds that signals the end of its SunWise Elite Plus guaranteed minimum withdrawal benefit product (GMWB) product. The new series, SunWise Essential, replaces the 20 year guaranteed withdrawal period with a lifetime guaranteed annual withdrawal equal to 5% of the initial deposit.

Sun Life is one of latest players to change its GMWB product. As several other insurers already did last year, Sun Life is moving from a guaranteed minimum withrawal period to a formula that guarantees income for life. The SunWise Elite and Elite Plus products will be closed to new sales after Oct. 15, 2010. Current clients will be allowed to continue making deposits, up to a maximum of $25,000 per year.

Issued in partnership with CI Investments, SunWise Essential will also offer a new feature: an option to base income on two lives. After the death of one spouse, the surviving spouse will continue to receive the same payments for as long as he or she remains alive.

Besides the Income Class category, SunWise Essential offers two other options catering to different markets: Investment Class is aimed at clients under age 50 who are in their accumulation phase, and Estate Class to protect inheritances. Sun Life developed the product and will manage the risks, while CI will handle back office functions and asset management.

With this launch, is Sun Life attempting to reduce the risks in its GMWB product? Indeed, in the industry, the lifetime guarantee is considered to be less risky than the minimum withdrawal benefit. What's more, the new product will reduce the maturity guarantee to 75% in all categories. It also includes an automatic reset every three years, which is a formula that further reduces risk.

However, for Sun Life's Vice President of individual wealth, Brian Taylor, it is more a question of following the trend rather than managing a risk that has become uncontrollable. In an interview with The Insurance and Investment Journal, he noted that within the industry, the product has undergone several modifications over last couple of years, and says that Sun Life wants to keep in step. He describes this change as a simplification of the product in order to better serve clients' needs.

Mr. Taylor also points out that Sun Life is one of the few major players in the industry that did not have to raise capital in order to deal with GMWB problems caused by the recession. Sun Life has raised more than $2 billion in capital since the beginning of 2009, but these funds have been used for general purposes or for investments in its subsidiaries.

"We have the financial strength that is required to honour our guarantees. When we launch a new product, we make very sure we cover the risk," says Mr. Taylor.

This coverage comes at a cost. Besides the management fees charged to the funds, the product also includes insurance fees and fees based on the lifetime withdrawal amount (LWA). For example, in the Income Class, the SunWise Essential CI Harbour Foreign Growth and Income Fund has a management fee of 2.51%, a death insurance fee of 0.78%, and an LWA base fee of 0.65%. For the CI Money Market Fund, management fees are 1.25%, insurance fees are 0.25%, and the LWA base fee is 0.22%.