{"id":15077,"date":"2019-05-20T12:44:00","date_gmt":"2019-05-20T16:44:00","guid":{"rendered":"http:\/\/lifeinsurance-orleans.ca\/Life-Insurance-Blog\/structured-annuities-take-hold\/"},"modified":"2019-05-20T12:44:00","modified_gmt":"2019-05-20T16:44:00","slug":"structured-annuities-take-hold","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2019\/05\/20\/structured-annuities-take-hold\/","title":{"rendered":"Structured Annuities Take Hold"},"content":{"rendered":"\n<div><img decoding=\"async\" src=\"http:\/\/insurancenewsnetmagazine.com\/images\/inn_default_logo.gif\" class=\"ff-og-image-inserted\"><\/div>\n<p>\nIt was almost a decade ago when I heard the news that a company that cannot stand indexed annuities had launched an \u201cindexed annuity.\u201d<\/p>\n<p>\nNo better way to confirm the information than to go straight to the horse\u2019s mouth: I gave the product management division of the company a call. \u201cDid you guys launch an indexed annuity?\u201d I asked with disbelief.<\/p>\n<p>\n\u201cOh yes, we are about to submit sales to your competitor in the market research space. Would you like us to send our sales to you as well?\u201d they asked.<\/p>\n<p>\n\u201cWait! [XYZ Insurance Company], whose wholesalers have bad mouthed indexed annuities for years has launched an indexed annuity? What does your product look like?\u201d I was dying to know. They explained the fairly simply design of the product, and the uber-competitive cap rates caught my attention. \u201cAnd that has a zero percent floor?\u201d I asked doubtingly.<\/p>\n<p>\n\u201cNo, the client absorbs all losses beyond the first [10%].\u201d<\/p>\n<p>\n\u201cThat isn\u2019t an indexed annuity. That is a security; a type of variable annuity, but not an indexed annuity.\u201d<\/p>\n<p>\nThe insurance company proceeded to insist that I must list their product sales under the indexed annuity portion of Wink\u2019s Sales &amp; Market Report. I forcefully declined \u2013 I would not be the laughing stock of the indexed annuity market, reporting sales of a product with a negative floor, under grids of products that promised principal protection.<\/p>\n<p>\nI immediately dismissed the product as an imposter. Little did I know then that structured annuities would become the fastest-growing segment of the annuity industry.<\/p>\n<p>\nThese infants of the annuity industry have been known by many names:<\/p>\n<ul>\n<li>\nHybrid annuities<\/li>\n<li>\nBuffered annuities<\/li>\n<li>\nIndexed variable annuities<\/li>\n<li>\nIndex-linked variable annuities<\/li>\n<li>\nRegistered indexed linked annuities<\/li>\n<li>\nStructured annuities<\/li>\n<\/ul>\n<p>\nThe term \u201chybrid\u201d annuity is not appropriate, as true hybrid annuities use a combination of annuity and long-term care insurance, to provide benefits in the event the annuitant needs benefits under the Pension Protection Act. The \u201cbuffered annuity\u201d moniker isn\u2019t always a proper descriptor, as not all of the premium allocation options in these annuities are buffered. The \u201cindexed variable annuity\u201d isn\u2019t really appropriate either because not all of the products offer variable subaccounts.<\/p>\n<p>\nDon\u2019t even get me going with the \u201cILVA\u201d or \u201cRILA\u201d names\u2026it is NOT an indexed annuity, and using the indexed terminology in the name gives me flashbacks of the whole \u201cEQUITY\u201d indexed debacle (we don\u2019t need folks confusing securities with fixed insurance products again!). Because these annuities are similar to structured notes, this seems a satisfying nombre.<\/p>\n<p>\nSo now that we have beat a dead horse- what ARE these products?<\/p>\n<p>\nI don\u2019t feel comfortable saying that they are a mix of indexed and variable annuity, as they are definitely a securities product, and indexed annuities are not. However, many used to describe indexed annuities as a product offering that was a nice \u201cmiddle ground\u201d between fixed annuities and variable annuities.<\/p>\n<p>\nIn the spirit of that message, I will say that structured annuities are a nice \u201cmiddle ground\u201d between indexed annuities and variable annuities.<br \/>Structured annuities limit their potential upside performance, based on the performance of an outside index- just like indexed annuities do. However, the caps on structured annuities are relatively aggressive, compared to indexed annuities. For example, the average structured annuity annual point-to-point cap today is 11.67%, while the average indexed annuity annual point-to-point cap today is 5.16%.<\/p>\n<p>\nIn turn, structured annuities generally do not have offer principal protection for the purchaser (although some premium allocation options do offer this); the annuitant is subject to losses. However, those losses also limited on the downside.<\/p>\n<p>\nFor example, the typical structured annuity may offer for the insurance company to absorb the first 10% of losses, but the annuitant would be responsible for all losses in excess of 10%. By comparison, every indexed annuity available for sale today has a minimum guaranteed floor of no less than 0.00%; the purchaser is not subject to market losses at all.<\/p>\n<p>\nThese products have experienced a lot of innovation in a short decade-long period. Initially, the products all credited interest based upon a term end point (or long-term point-to-point) crediting method. Today, these products offer numerous methods for calculating the interest (still not as many as indexed annuities, but if I were a betting woman, I\u2019d say they\u2019ll get there!).<\/p>\n<p>\nIn the beginning, the products only used cap rates to limit the indexed interest; today spread rates are also used to limit the indexed interest. No doubt, someone will offer a product with participation rates as the \u201cmoving part\u201d before we know it. The freshman products had no living benefits, but there are definitely offerings today.<\/p>\n<p>\nInitially, I was quick to dismiss structured annuities as a product offering. \u201cWho needs a middle ground between indexed and variable annuities?\u201d I asked.<\/p>\n<p>\nConsumers have spoken: they do.<\/p>\n<p>\nIn just the four quarters that my company has been tracking these products, sales have gone from $2.2 billion a quarter, to $3.5 billion a quarter. Further supporting the interest in the product line is that at the beginning-of-the-year, there were only five companies offering this unique type of annuity; today there are 11. And everyone seems to be doing R&amp;D on these. That\u2019s right- structured annuities are the new \u201cIt Girl\u201d of the insurance business.<\/p>\n<p>\nAnd why? With interest rates are at historical lows, caps on indexed annuities are so low that many one-time loyalists are now saying, \u201cI can\u2019t sell that!\u201d These same salespeople find the opportunity to offer their clients a potential 11.67% index credit much more appealing than a potential 5.16%.<\/p>\n<p>\nIn light of this, if low interest rates continue- structured annuities\u2019 growth could give indexed annuities a run for their money. But ultimately, this is NOT a good solution for the prospect who is not comfortable with risk. Period.<\/p>\n<p> <a href=\"http:\/\/insurancenewsnetmagazine.com\/article\/structured-annuities-take-hold-3680\">Read the original article at InsuranceNewsNetMagazine.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>It was almost a decade ago when I heard the news that a company that cannot stand indexed annuities had launched an \u201cindexed annuity.\u201d No better way to confirm the information than to go&#46;&#46;&#46;<\/p>\n","protected":false},"author":578,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/15077"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/578"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=15077"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/15077\/revisions"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=15077"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=15077"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=15077"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}