Late last year we explained why index annuity carriers were making changes so rapidly. It all boiled down to interest rates (10-year treasury) and market (S & P 500) volatility.
Let’s equate it to the grocery store. Say you want to buy apples on a weekly basis. The number of apples you buy is a function of
- your apple budget, and
- the price of apples that week.
Index annuities are very similar. As interest rates on long term bonds rise (see below), the insurance company has more money to spend on the purchase of S & P options (apple budget).
Next, since the price of options varies based on the volatility of the underlying index, the lower the volatility, the “cheaper” the options (apples). As you can see from the two graphs, over the last several months, interest rates have been gradually rising and volatility has been gradually decreasing. This scenario bodes well for all indexed annuities.
The real story here is how these market changes affect the Annexus portfolio. Because of its daily pricing and multi-year index strategy, Annexus can purchase twice as much S & P exposure (apples) for the same cost as a traditional annual reset product (consider it a 2 for one sale on apples). This results in significantly more value for your client!
Consider the February Annexus Rate Sheet
. As you can see, we now have a 41/59 allocation at a 0.00% fee. When we back test this design over the last 30 years and compare it to traditional index designs, the results are impressive. Where traditional designs back test with average 12-year returns between 2.99% and 3.87%, the BAA 12 back tests between 5.59% and 6.92%.
Ask yourself …If I can provide the same down-side guarantee but generate up to twice the return (apples), which basket should I choose?
If you would like a copy of the back-test, contact your marketing partner at 800-699-0299.