The bad news surrounding variable annuities continues to mount as the annuity industry begins to feel the full effects of the financial crisis. Earlier this week, we questioned the assurances offered by annuity firms after AXA Equitable and MassMutual announced plans to modify, or in some cases eliminate, existing living benefit riders in an effort to reduce insurance responsibilities and risk exposure. This news coupled with the staggering year-to-date losses for VA contracts which stands at a 214.7 billion dollar loss after three quarters have injected a level of uncertainty and panic into the average annuity investor. No wonder variable annuity sales are down 10% in 2008 while safer fixed annuities are up a remarkable 41%.

Unfortunately, all signs indicate that the worst is yet to come for the annuity industry and its customers. Two more firms - Pacific Life and The Hartford - have modified guarantees on living benefit riders choosing to raise costs and eliminate VA benefit riders.

Pacific Life will discontinue the sale of the Foundation 10 GMWB while raising fees on the popular Flexible Lifetime Income Plus (FLI+) rider on January 1, 2009. The Hartford is increasing the costs of the Principal First GMWB and two Lifetime Income Builder GMWBs come February 17, 2009. Given the persisting market volatility, more annuity firms may look to reduce short-term risks by decreasing their stable of living benefit riders or raising fees in order to better address the skyrocketing hedging costs associated with the riders.

Currently, neither firm makes mention of the impending revisions to their VA living benefit riders on either their public or advisor website homepages. The Pacific Life advisor homepage continues to advertise the FLI+ rider with 7% credits for 10 years (soon to be 5%). The Hartford advisor homepage promotes the Lifetime Income Builder Selects and Portfolios riders with costs of 55 and 65 basis points respectively (each is scheduled to rise 30 basis points). Hopefully, the firms become more open with investors and advisors online as the effective dates draw closer.