Income Bonus

[Allen Trent]

But if rates are higher than when the contract started, carriers are selling discounted bonds to purchase higher yielding bonds... thus making them more money.

I realize that is not taking into account the book value and its impact on the carrier. I think some MVA adjustments take that into account. But Im looking at contracts right now with positive MVA adjustments... none are at parity... but its a huge reduction in surrender charges for some.

would be interested to see those. Most MVA I am seeing today are applying an additional MVA charge over & above the surrender charge for withdrawals over & above the free WD amount because the 10 year treasury is higher at time of withdrawal/surrender than the 10 year treasury at time of issue. MVA is helping the carrier who had to sell the bond at a discount. The client i was referencing was facing a 7% surrender charge in year 3 and an additional 5.71% fee (treasury was 1.84% at time of issue & was 3.84% at time agent was proposing a 1035. The MVA was applying an additional 5.71% fee for a total of 12.71% instead of the 5% surrender charge they thought.

Granted, the client could possibly still be better off, but with only 2 years left on their MYGA, they are guaranteed to make 12.71% by avoiding the surrender charge & MVA charge. Plus, they have 2 years left at 3% guaranteed, meaning they would be guaranteed to "make" 18.71% net by staying in the current lower MYGA. The agent was saying that making 2.25% guaranteed for new 5 year MYGA would more than cover the 7% surrender charge

These were numbers confirmed by the carrier too.

only way this client would be better is if they stick with current MYGA & when it renews in 2 years rates have plummetted to 1-2% to the point that the client would have been better off to get a new 5.25% MYGA for 5 years after losing 12.71% surrender/MVA charge. I believe this was a commission play by the rep who likely didnt understand how that specific carrier applied the MVA

Maybe some are waiving MVA now for clients to stay with carrier for longer duration

 

[Sheryl J Moore]

I checked AnnuitySpecs, and there are 52 different indexed annuities that have a bonus on the shadow fund value of the Guaranteed Lifetime Withdrawal Benefit (GLWB), similar to these products. The SILAC Vega Bonus 10 is the only product that has a higher bonus than the 35% that you cited, coming in at 50%. Keep in mind that lifetime income must be initiated under the rider, in order for the annuitant to benefit from these bonuses. sjm

 

[DHK]

The SILAC Vega Bonus 10 is the only product that has a higher bonus than the 35% that you cited, coming in at 50%.

And keeping SILAC's ratings in the equation as they are a B+ rated carrier by AM Best, so there's a reason why their bonus is higher than others.

 

[Allen Trent]

And keeping SILAC's ratings in the equation as they are a B+ rated carrier by AM Best, so there's a reason why their bonus is higher than others.

Great point

The irony is, at a time they need to be improving their financials, they are incentivizing new & crossimg their fingers they will be in good enough financial health in a decade or more to honor those aggressive product features. Lots of income annuities written 15+ years ago with too high of lifetime income riders were scrambling to try to bribe the consumers out of those overly rich contracts that their financials couldn't handle if the clients actually exercised those contract rights

 

[DHK]

I was on one of their webinars a few months ago with one of their actuaries.

I asked about their financials... and the line was "If we wanted and saw the need for more reserves, we would get them."

They have no desire to improve their ratings.

Of course, with higher ratings, they can't continue to incentivize these kinds of deals.

 

[genefl]

Nationwide new heights has a 20% bonus depending on age and time for income will be in the running .

 

[genefl]

Not a fan of weaker B+ rated companies in this environment for a 10 year period.