Transcript Equity Indexed Annuities

Equity Index Annuities
Annuity Marketing
CPS INSURANCE SERVICES
For Agent use only/Not for use with the general
public
Agenda 5/24/06
Webinar Duration 35-45 Mins
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What is an EIA
Typical Client
Types of EIA’s
Minimum Guarantees
Growth Adjusting Factors
Examples:
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Annual Reset Point to Point
Annual Reset w/ Monthly Average
Annual Reset w/ Performance Trigger
Annual Reset w/ Monthly Pt to Pt
• Regulatory Environment
• Client Handouts
• Questions
What is an Equity Indexed Annuity
(EIA)
• Fixed Annuity- Guarantee of Principal
• Benefits linked to an external equity reference or an
equity index (Typically S&P 500). YOUR CLIENT IS
NOT DIRECTLY PARTICIPATING IN THE MARKET
• Can be Immediate or Deferred
– Deferred- (Most Common) Monies allowed to
accumulate tax deferred
– Immediate- Income payments (Annuitization) to
begin within 1 year of issue
Typical Client
• Wants guarantee of principal
• Is dissatisfied with fixed returns
• Can sustain year(s) with little or no account
growth
• Does not need systematic withdrawals
• Does not need to access funds until age 59.5
• Can understand somewhat complex product
designs
Types of EIA’s
• Annual Reset/Ratchet Point to Point
• Annual Reset/Ratchet w/ Monthly Average
• Annual Reset/Ratchet Performance Trigger
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Account
Annual Reset/Ratchet w/ Monthly Point to
Point
Annual Reset/Ratchet w/ Daily Average
Contract Term Point to Point
High Water Mark
and more…
Definitions
• Premium- Premium deposits can be Single (one time
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only) or Flexible (ongoing)
– If flexible do they reset surrender charges?
Accumulated Value (AV)- Premium and any credited
index measured growth
Surrender Value- AV less any surrender charges
Policy Anniversary- Date of policy issue.
Index Anniversary- Date Index values are
measured. (if this date falls on a non-trading day,
carrier will measure the previous or following trading
day) note: Index Anniv and Pol Anniv may be 2
different dates
Minimum Guarantees
• Can be applied to Premium (Prem) or Accumulated
Value (AV)
• Premium Guarantee – Most common, Compound
your premium (or % of) at set rate and compare to
Accum Value, client gets the higher value. (2 lines of
money)
E.g… 90% of premium at 3%
– 100K prem, 10yr contract - 90K @ 3% for 10yrs
= $120,952 or 1.92% AEY
• Accum Value Guar- If credited index earnings are not
at least as high as set min. then entire AV is credited
min. guarantee (1 line of money)
Index growth adjusting factors
• Participation Rate (PR)-Specifies the % increase in the index
growth that you will “participate” in.
• Spread- AKA:Margin, Fee - Subtracted from index growth
before earnings are credited.
• Cap Rate- (Cap) 2 types– INTEREST CAP-Caps the max. amount of interest you can
earn after application of adjusting factors (PR, and spread).
– INDEX CAP- Caps Index growth before applying adjusting
factors
• Performance Trigger Account Credited Interest- Specified
interest rate credited to account as long as index does not
decline
• Adjusting Factors can change on policy anniversary
typically and are subject to min/max
Annual Reset/Ratchet Point to Point
• Most Popular Design
• Easiest to understand / explain
• Compares the index starting value on the
policy’s index start date to index ending value
on the index anniversary.(Index Anniv and Pol
Anniv may be 2 different dates)
• Apply adjusting factors i.e.. PR, CAP, Spread
• Earnings are locked in and cannot be taken
away (Ratcheted)
Annual Reset/Ratchet Pt to Pt
100K prem, 100% PR, 6.00% earnings cap, No
spread. Min Guar = 2% on 100% of AV
(Lafayette Life Marquis Advant-Edge)
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Year 1
1st year index start date 1/15/05 index value = 900
1st year Index Anniv 1/15/06 index = 980
980-900=80 pt increase; 80/900= 8.89% index
growth
Apply 100% PR=8.89% then cap at 6.00%.
You earn 6.00% for this contract yr.
AV @ end of yr 1 = $106,000
Year 2
• Beginning of year 2 AV= $106,000
• Year 2 Index start date 1/15/06, value = 980
• Compare to 1/15/07 index value = 970
– 970-980= -10 (Negative year but no reduction to
AV due to ratcheting)
• Minimum Growth Guaranteed
– 2% on 100% of AV = 2% on $106,000 = 108,120
End of Yr 2 AV = 108,120 (1 line of money)
Bi-Annual Reset/Ratchet point to point
• Similar design as Annual Reset/Ratchet with
the difference being that it compares index
growth over 2 years
• Will have higher caps & PR, lower spreads
• Risk of having 2 years pass with no AV
growth
Annual Reset/Ratchet with Monthly Average
• Common design however a bit more complex than
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Ann Reset Pt to Pt
Compares index starting value on the policy’s index
date to the average index value on “X” day of the
month for 12 months after the index starting date.
Apply adjusting factors; PR, Cap, Spread
Gains locked in.
Index Growth typically reduced due to the effects of
averaging…averaging takes the “high’s” and the
“low’s” and gives you a “middle ground”
Ann Reset/Ratchet w/ Mo. Avg.
100K Premium, 100% PR, 0.10% spread. No Cap.
Min Guar = 100% of prem at 1.50%
(Jefferson Pilot Opti-Choice 7)
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Year 1
Pol index date 1/15/04 index value = 1000
Add close of index value for 2/15/04 + 3/15/04 + 4/15/04 … +
1/15/05 = X
Divide X by 12 = Mo Avg. index growth
If X/12 = 1053 then 1053-1000 = 53 ; 53/1000 = 5.30% average
index growth
Apply Adjusting Factors - PR, Spread, Cap
5.30% mo avg index growth x 100% PR = 5.30% , less 0.10%
spread = 5.20%
AV at end of yr 1 = $105,200
Annual Reset w/ Monthly Average
continued
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Year 2
Accum Value = $105,200
Pol index date 1/15/05 index value = 1100
Avg index value on 15th day of month for next 12 mo
= 920 (Negative index return)
No reduction to AV (Ratcheting)
Min Guar Value = 100K @ 1.5% for 2yrs = $103,023
If client cancels they get the higher of $105,200 or
$103,023, less surrender charges (2 Lines of Money)
End of Yr 2 AV = $105,200
Key Points to Consider w/ Mo Avg
• Last averaged point is the starting point for
following year
• Typically Higher PR & Caps, Lower Spreads
(may be misleading to clients/agents)
• Averaging will push values toward the middle;
in a rising market avg will be lower than the
end point, in a declining market avg will be
higher than the end point
• More complex design
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Annual Reset/Ratchet Performance Trigger
Account (PTA)
Newer EIA crediting method
Credits a specified interest rate as long as
measured index does not decrease
No adjusting factors used, just a fixed
credited rate as long as no index decrease
Earnings will be credited in a flat market
Easy to explain and understand
Limited upside potential
Works best in a flat or slightly increasing
market
Annual Reset Ratchet Performance Trigger Account
100K deposit, 6.90% PTA crediting rate.
Min Guar=100% of Prem @ 1.75%
Jefferson-Pilot New Directions I-66
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Year 1
Pol index date 1/15/04 index value = 1000
Pol index Anniv 1/15/05 index value = 1000
There has not been a decline in the index
Monies allocated to this account earn 6.90%
Accum Value @ end of yr 1 = $106,900
PTA example Continued
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Year 2
Beginning of year 2 AV = $106,900
Pol index date 1/15/05 index value = 1000
Pol index Anniv 1/15/06 index value = 900
No index growth
Client does not lose money, but does not
receive any credited interest
Accum Value @ end of year 2 = $106,900
Minimum Guarantee account = $103,530
(100K compounded at 1.75% for 2 years)
Monthly Point to Point Annual Reset
• Newest Design Available
• Higher Upside potential
• Compares percentage increase/decrease in
market index on a monthly basis.
• Monthly increases are capped, decreases are
not.
• Sum of positive and negative months are
added up at the end of the year. Positive
values are credited to AV.
• BEWARE !!!- Can easily be misrepresented
to clients
Ann Reset/Ratchet w/ Mo. Pt to Pt.
100K Premium, 3% monthly cap,
Min Guar = 90% of prem at 3%
• Pol issue date 8/1/04 S&P
= 1000
• 9/1/04 S&P=1050 (10501000= 50/1000= 5%
increase) capped at 3%.
Growth = + 3%
• 10/1/04 S&P=900 (9001050= -150/1050= 14.29% decrease)
• 11/1/04 S&P = 1200
(1200-900=300/900=33%
increase, capped at 3%….
• Add up all positive and
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negative months
+3, -14.29, +3…
Earnings are credited on
policy anniversary and
locked in annually
(Ratchet)
Pros- Large potential
upside
Cons- Upside growth is
capped, downside is not.
Regulatory Environment
• SB 620- CA/Similar in other States
– 8 Hours Annuity CE; 4 Hours Ethics Follow up
– Senior Visit Disclosure
– Tax Implication Disclosure
• Suitability Disclosures
• NASD NTM 05-50
• AML
CPS EIA Annuity Carriers
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Allianz Life (AM Best A)
AIG/American General (AM Best A+)
Fidelity & Guaranty (AM Best A)
Equitrust (AM Best A)
Lafayette Life (AM Best A+)
ING/USA (AM Best A+)
Business Men's Assurance (AM Best A)
Jefferson Pilot (AM Best A++)
Lincoln Benefit/Allstate (AM Best A+)
SunLife (AM Best A++)
Standard Insurance Co. of Oregon (AM Best A)
And many others…
CPS Insurance Website
www.CPSInsurance.com
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Product Info; Current Rates; State Availability
41 Compliance approved client handouts
25 Broker focused training handouts
Lic/Contracting & Application Forms
Real time case status
Carrier strength & ratings info - Vital Signs
Client EIA Presentation Work Sheets
Multimedia Client and Agent Presentations
NEW EIA SECTION !!!
Did You Know ?
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CPS Insurance…
Has been in business for 31 years
Is contracted with over 50 highly rated carriers
National Wholesaler licensed in all 50 states
Is the LARGEST independently owned insurance
wholesaler in the nation
Has 2 in-house Underwriters as well as an Advanced
Planning Attorney
Provides sales/planning assistance for advanced
concepts- Buy-Sell, 412i, Charitable Giving, etc.
Has Full Service Life, LTC and Annuity departments
CPS Annuities Contact Info
(800)326-5433
[email protected]
Pete Buechler CLU, FLMI, AAPA x 148
Dean Walsh AAPA, ACS x 143
Eric Neilsen x 126
Nicole Samson AAPA, ACS x 123
Thank you
CPS Annuities