Equity Indexed Annuities: Are they the real deal or junk products?

[URDRWHO]

I did a search and found the same PDF as your link. The Net is an amazing thing isn't it? Weird that the SEC made a decision in the 1980's, on one existing EIA plus it was a product that didn't fly very long.

Still doing a PDF search where it mentions Keyport in a separate account. What page is it on? I do a search for Keyport and get one hit.

It mentions the EIA was originated in the UK "The equity-indexed annuity (EIA) concept has its origins outside the US,
mainly in the United Kingdom"....is the EIA a registered product in the UK?

It is a well written paper. Never knew the FIA originated in the UK. I'll read the entire thing tonight while waiting to fall off into a good nights sleep.

I remember I didn't like the original Keyport design but can't remember why?

From your link.........."The unique added benefit of the EIA is its provision of equity-linked returns without losing the guarantee of principal." The SEC says,
Statement at Open Meeting on Equity-Indexed Annuities; Washington, D.C.; June 25, 2008 (Christopher Cox)

"Surrender charges are another way that investors can find that they get back less money than they put in"....if you don't lose principal what is the first way.

And my favorite from FINRA.........
FINRA - Investor Information - Investor Alert - Equity-Indexed Annuities—A Complex Choice

"Many insurance companies only guarantee that you'll receive 90% of the premiums you paid" .... "Therefore, if you don't receive any index-linked interest, you could lose money on your investment."

The Washington NAIC person I talked with really, really wants FINRA to find those "many" insurance companies that only guarantee to give you 90% of the premiums paid.

This was the Google "Fidelity Benefit had a 1980s equity index annuity" that led me to the paper. Your link shows 403 Forbidden, I didn't think it was an active link so I did the search. Later I clicked the 403 Forbidden and it was an active link, going to the same site I found in the Google.

Thanks for the link....good stuff.

Interesting 1998 study on EIA, includes some history. Fidelity Benefit had a 1980s equity index annuity. The Keyport product it mentions was in a separate account.
403 Forbidden

 

[JMO Fan]

Try this link for some old EIAs: Derivatives Strategy - February'96: Insurers Play the Equity-Indexed Game

 

[URDRWHO]

I remember those first LBL policy's and sold them. I have one of them myself and I rolled back in after the seven years. All clients except one, have rolled back into the LBL when they received their offer.

Did CNA ever enter the market? I don't remember seeing their offer but I do remember them getting into the Viatical market.

This article
Bringing Clarity to Equity Indexed Annuities - Investment Advisor Magazine

led me to this site
FIAToday.com™ Dedicated to Presenting an Objective View of Fixed Indexed Annuity

But as of today I have yet to view the online demo.

I still say this is about politics. The insurance companies were losing money and came up with an idea. Now the equities people are losing money and they are getting government to help them regain markets.

Derivatives Strategy - February'96: Insurers Play the Equity-Indexed Game

"Insurers are also hoping EIAs will help them regain assets lost to the mutual fund industry. Between 1980 and 1990 mutual fund assets grew by 600 percent, while insurance company assets grew by just 223 percent. "The insurance industry has been asleep, letting customers move assets to other sectors," says Ray Mathews, president of FDI Financial. "This is its wake-up call."

I personally do not at all mind competition in the sale of FIA's BUT when the equities forces try and make FIA's their own baby.....that I do not like. When the SEC says that a registered product will cause loss of competition and raise cost....to me that means this is not about protecting consumers.

Try this link for some old EIAs: Derivatives Strategy - February'96: Insurers Play the Equity-Indexed Game

 

[JMO Fan]

I agree politics will be the deciding factor. Legal logic would say the SEC classifies all EIAs as securities. But if the SEC doesn't please political powers, the laws would be changed to follow federal forces.

FINRA, NASAA, and NFA will get SEC to adopt the proposed rule, perhaps stronger than now written.

 

[Brokers Alliance]

Okay, my company is critical of equity indexed annuities, saying they feel they are "too risky". They seem to be a great product on the surface, with a person being able to get a substantial portion of market gain most years and a guaranteed that ain't that far off what the fixed annuities offer. I actually wonder how the companies offer them and stay in business. An NASD article implied that there could be issues of insurer solvency down the road, but is that legit or does the NASD just want to get its regulating hands on them?

Thoughts please.

As far as regulation, it is a battle between state insurance regulators and federal securities regulators. I am sure this will be a fight, but the federal regulators are going up against a strong lobby. We'll just have to wait and see.

Article: http://www.individual.com/story.php?story=85845472

The argument that is made (by others) is, that variable annuities are invested in prospectus products, and the decision as to which mutual fund, or group of stocks to invest in, needs to be regulated, whereas indexed annuities are only linked to the various indices, but there is no individual stock or mutual fund picking.

Exactly. With variable annuities that agent is also there to give advice and to responsibly assess risk. Hence the requirement of securities licensing. As Melmunch states well, where indexed annuities are set to be linked to the various indices, the annuitant does not pick stocks or mutual fund, thereby the agent does not give advice as such.

 

[Brokers Alliance]

To continue a subject that was within this thread about SPIAs. SPIAs constitute approximately 30% of our annuity business and it all depends on the customer's needs and suitability. So, in some instances, a SPIA is a good idea.

A recent client of mine was 76 and because he wanted to start a payout within several months, he thought he only qualified for a SPIA. I actually sold him a Global Indexed 10-Year annuity with a look-back feature and minimum guaranteed interest, that of course has the opportunity to renew. It also takes care of his spouse in the event he dies.

As opposed to a SPIA which provides a set amount, it allows more control and he can take out up to 10% per year on a monthly basis. Or, he has the choice to not take out any and have the balance continue to accrue.

For him, this was the right choice. For others who do not care to manage their money as closely, this would not be the right choice.

 

[KJ in Miami]

Re: Equity Indexed Annuities: Are they the real deal or junk pro

Okay, my company is critical of equity indexed annuities, saying they feel they are "too risky". They seem to be a great product on the surface, with a person being able to get a substantial portion of market gain most years and a guaranteed that ain't that far off what the fixed annuities offer. I actually wonder how the companies offer them and stay in business. An NASD article implied that there could be issues of insurer solvency down the road, but is that legit or does the NASD just want to get its regulating hands on them?

Thoughts please.

Someone invested money in a GenDex 5 with Allianz in 2006. Not sure the returns except 2009 & 2010. In 2009, he made 1.4%. In 2010, 0% even though someone made 11% on his money as that was the net for the year! Mathematically, they are stacked in the insurance companies favor 7 out of 10 times. He had a monthly cap of 2.1%, so when the index made 8% one month, he made 2.1. When the index lost 11%, he lost 11%. The probability of him coming out on top is very unlikely. I hope this helps as to why many do not like them!
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good point, I really don't understand how variable annuities are regulated but not Equity Indexed annuities I really wish someone could shed some light on that for me.

Not sure either - someone must be getting paid or they are skirting the law just like OJ did in the first trial!!

 

[arnguy]

Re: Equity Indexed Annuities: Are they the real deal or junk pro

Good post KJinMiami, this thread is really old. The last post was alomst 3 years ago and the forum members to whom you replied have nat been heard from in ages.

 

[KJ in Miami]

Re: Equity Indexed Annuities: Are they the real deal or junk pro

Cool! Good to know. Have a good weekend.

 

[Larry Tew]

Re: Equity Indexed Annuities: Are they the real deal or junk pro

Cool! Good to know. Have a good weekend.

What a dick!