Fixed Indexed Annuities & Indexed Universal Life

[dolcemango]

Does anyone know if companies like New York Life and Mass Mutual sell these types of products? I find it a little curious as to why they apparently don't.

 

[policy doctor]

Doesn't the second question cancel out the first?

 

[scagnt83]

They love to bash indexed products.. I feel that there are two main reasons behind it.

First, it takes away from their core products and marketing position.

Second, it requires that they take on more risk by having to hedge for possible large index gains.
Which will inherently create a slight decrease in their stability/ratings.

Come to think of it, both reasons really go hand in hand... they pride themselves on safe, absolute guarantees with stellar ratings. And they dont want to risk that business model at all.

But because of competition and the improvement of indexed contracts, I would guess that eventually they will enter the market.

 

[Larry Tew]

SC, can you point me to any unbiased historical surveys showing how indexed products have ACTUALLY fared compared to fixed products as well as to the market in general? All I seem to find are studies that do nothing more than try to validate the position of the author of the study.

One common opinion on indexed products is that since the companies set the caps, participation rates, etc... it still comes down to the company deciding how much interest / growth the product gets regardless of the market index. Where can we go for the real story?

 

[scagnt83]

SC, can you point me to any unbiased historical surveys showing how indexed products have ACTUALLY fared compared to fixed products as well as to the market in general? All I seem to find are studies that do nothing more than try to validate the position of the author of the study.

One common opinion on indexed products is that since the companies set the caps, participation rates, etc... it still comes down to the company deciding how much interest / growth the product gets regardless of the market index. Where can we go for the real story?

LOL. Well Larry, those are all damn good questions!

One of the best and most non-biased studies on FIAs (at least imo) is called "Real World Returns", it was done by the Whorton Institute. I have attached a pdf to this post.

It does a good job of actually pointing out the limitations and subjectiveness of its own study, which I considered fairly non biased in the first place.
(like any good study thats based on scientific style reasoning and deduction should)

In one section of the study, they took actual 5 year returns from actual FIA products from all different carriers with all different types of caps/spreads/participation/crediting methods/etc.
They did this for the 5 year periods from 97'-03'.
The worst 5 year period was 4.33%.
The best was 9.19%.
(Of course the only carriers used where the ones who responded to their request to participate; which they state directly after the chart showing this)


I have seen a good many indexed contracts from 7-10 years ago; most have averaged 6%-8%.
I would guess from my experiences that the average FIA investor who is in a capped yearly/biyearly p2p or a monthly cap has/most likely will, over the long term average somewhere around7%.
(Of course this is totally just my general opinion)


But because of the ambiguity of many FIA/IUL contracts. I feel that it is extremely important to work with a financially stable company that has a solid reputation of always doing the right thing for the clients (or at least not fu*king their clients over like some of the FIA carriers are known for/getting sued for)(yes, I do realize that agents had a big part to play in placing clients in the product)

I see it as being similar to the early UL products that have now blown up (or should I say "IMPLODED") on many people they where sold to.

Now these days in the aftermath of all that, we have UL contracts with very strong guarantees and much lower fees and coi.
We are starting to see the same thing with FIAs.
Compare a contract (of a reputable carrier) today with one sold 10-12 years ago. There will be some very big differences in most cases.

But I do feel that we will most likely see a simplification of indexed products as time goes on. The carriers dont want this to become a security anymore than us agents do. So I would bet that they will start to do away with some of the more exotic indexes and some of the more complicated crediting methods.

One thing that I have definitely found from reviewing old indexed contracts, is that the simple crediting methods that where tied to the S&P seemed to fare the best.
This opinion is backed up by Wharton study as well.



Now, with that being said. Going back to the OP; if the company has to plan on paying a 7% longterm average for these contracts, then they will have to take on more risk to do so.
Thus making it unattractive to the big mutuals.
Also, they have badmouthed them for so long, what will it look like if they go back on their word now??
Also, they have enough trouble as it is training the newbies on the simplistic products they have now, I could only imagine if they had to train all the green agents on FIA crediting methods...

 

[Larry Tew]

Thanks. I'll check it out, but the pdf doesn't seem to be attached.

 

[scagnt83]

Thanks. I'll check it out, but the pdf doesn't seem to be attached.

My screen is showing that its there. I posted and forgot to attach it at first. It should be there now.

 

[VolAgent]

Interesting read. While I scanned it more than read it, it seems to support what I've thought all along. A fixed indexed product is appropriate for someone who wants upside potential with limited downside. As long as they understand they will not fully participate in a large upswing in the market, it can be perfectly fine. And the study even seems to suggest they may come out ahead when you consider market losses that they are not exposed to.

 

[Full Throttle]

For the right person, they can make a lot of sense. In my opinion, they are an alternative to a traditional fixed annuity to get a little more return (with a little more risk). I have a client right now with about $120,000 in fixed annuities that doesn't want to lose money. He won't put the money in the market if there is a chance of loss. Fortunately, this is a small portion of his retirement, his future payout is his business.

For him, I'm looking a presenting an EIA or a VA with a GMAB rider for a portion of that money. My guess is he'll choose a EIA when both options are explained side by side.

 

[HarryRenard]

Allianz illustrations can give you some insight in what returns would have been over the past 30-40years (broken down by the year) for each of the account options.
It will take into consideration caps/partic and tell you what the returns would have been. Its not perfect but it might help.