New capital reserve requirements and low interest rates have forced Desjardins Financial Security to temporarily suspend sales of its guaranteed lifetime withdrawal benefit product.
As of April 27, advisors will no longer be able to offer clients a GLWB option with the sale of a Helios Contract, DFS’s segregated fund product. A GLWB is the option to convert a segregated fund product into a lifetime stream of income.
The move follows in the footsteps of Standard Life Assurance Co. of Canada, which suspended new sales of its GLWB product in mid-April. Transamerica Life Canada was the first insurer to permanently exit the guaranteed minimum withdrawal benefit (GMWB) market in February.
More insurers are expected to follow, says Alain Bedard, senior vice-president, individual insurance, savings, for DFS.
“The low interest rate environment has made it increasingly difficult for insurers to meet reserve requirements needed to maintain these products.”
New capital requirements for insurers, released by the Office of the Superintendent of Financial Institutions in January, accelerated the insurer’s decision to temporarily suspend the product, adds Bedard. “Changing markets conditions have made it very difficult to maintain the new requirements.”
Since the inception of guaranteed products in 2006, the interest rates on 10- and 20-year government bonds have fallen dramatically. Insurers typically invest in such bonds to ensure they can make the investment income needed to pay out the guarantees they promise down the road. As a result, some insurers such as Manulife Financial Corp. have lowered the guaranteed payouts on the guaranteed minimum withdrawal options they offer or suspended them altogether.
DFS plans to spend the remainder of 2012 revising its GLWB product and possibly releasing a revised version when the interest rate environment is more favorable.
Until then, Bedard maintains that the rest of DFS’s segregated fund lineup should remain unaffected. “We are committed to the segregated fund business and will keep improving it for advisors.”