FIA anniversary cap changes limits?

[scmb]

I’ve been working with a retired engineer who’s questioning the future changes to his caps.

I explained the guarantee minimum, but is there anything else that limits them from offering different renewal caps to old vs new clients?

Is there any rules/regulations that restrict carriers from lowering caps after anniversary?

I’m sure they are risking losing future business from experienced agents but is that their only incentive?

 

[DHK]

As soon as you know the math and economics of how indexed contracts work, you'll be able to answer this question yourself.

In short, it's the general investment account performance of the insurer (interest rates) and the pricing and strike price of the index stock options.

https://davidkinderfinancial.wixsit...t-work-with-Fixed-Indexed-Insurance-Contracts

 

[scmb]

I actually read it prior to posting and I understand how the company makes their calculations.

My question is more about what stops the company from making a decision based on “greed” to lower your cap on renewal..

Of course as an agent you would now want to write with them again but what would you say to a prospect who’s going to be affected

 

[DHK]

Show them renewal rate history for both new money and old money. If I go here with ANICO's Strategy Indexed Annuity 10, there's a "rate history" link on the right side. Compare the rates for new money & old money for each index segment term.

ANICO Strategy Indexed Annuity PLUS 10

Of course, there may be "first year promotional rates" or whatever to attract new sales. Things like this set up the relationship for a let down later on because it was "so good" when you originally wrote the contract.

Otherwise, this whole idea of "greed" factor is an old wive's tale rooted by those who either don't understand the underlying economics within contracts, or have a bias against fixed indexed contracts who believe that caps (or whatever) are set just to suit the profitability of the insurance company.

Obviously, if you have a company you don't trust... don't write them.

 

[Allen Trent]

As soon as you know the math and economics of how indexed contracts work, you'll be able to answer this question yourself.

In short, it's the general investment account performance of the insurer (interest rates) and the pricing and strike price of the index stock options.

https://davidkinderfinancial.wixsit...t-work-with-Fixed-Indexed-Insurance-Contracts

great article every time I read it.

In addition to reserve differences between Annuity & IUL, one of the other reasons I believe EIA tend to have lower cap or participation rates than an IUL is that the Annuity carrier doesn't have internal costs & fees to profit from like they do with an IUL. So, the Annuity carrier needs to first get their spread/profit from their general investment account, leaving less money to purchase the call options. Because the IUL carrier knows they have the load fees, policy fee, ART COI, they can budget more for call options. I may be wrong on that, but I believe it to be true in addition to reserving.

ironically, I have seen some agents use that as a basis as why someone should buy an IUL instead of EIA.......because the caps are higher. But, they fail to mention an IUL is much, much more than just segment crediting. Both can be great as we know, but there I much more than cap rates to net performance even between IUL carriers or products offered by the same IUL carrier.