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Equity Index Annuities

Equity Index Annuities. Annuity Marketing CPS INSURANCE SERVICES For Agent use only/Not for use with the general public. Agenda 5/24/06 Webinar Duration 35-45 Mins. What is an EIA Typical Client Types of EIA’s Minimum Guarantees Growth Adjusting Factors Examples:

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Equity Index Annuities

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  1. Equity Index Annuities Annuity Marketing CPS INSURANCE SERVICES For Agent use only/Not for use with the general public

  2. Agenda 5/24/06Webinar Duration 35-45 Mins • What is an EIA • Typical Client • Types of EIA’s • Minimum Guarantees • Growth Adjusting Factors • Examples: • Annual Reset Point to Point • Annual Reset w/ Monthly Average • Annual Reset w/ Performance Trigger • Annual Reset w/ Monthly Pt to Pt • Regulatory Environment • Client Handouts • Questions

  3. What is an Equity Indexed Annuity (EIA) • Fixed Annuity- Guarantee of Principal • Benefits linked to an external equity reference or an equity index (Typically S&P 500). YOUR CLIENT IS NOT DIRECTLY PARTICIPATING IN THE MARKET • Can be Immediate or Deferred • Deferred- (Most Common) Monies allowed to accumulate tax deferred • Immediate- Income payments (Annuitization) to begin within 1 year of issue

  4. Typical Client • Wants guarantee of principal • Is dissatisfied with fixed returns • Can sustain year(s) with little or no account growth • Does not need systematic withdrawals • Does not need to access funds until age 59.5 • Can understand somewhat complex product designs

  5. Types of EIA’s • Annual Reset/Ratchet Point to Point • Annual Reset/Ratchet w/ Monthly Average • Annual Reset/Ratchet Performance Trigger Account • Annual Reset/Ratchet w/ Monthly Point to Point • Annual Reset/Ratchet w/ Daily Average • Contract Term Point to Point • High Water Mark and more…

  6. Definitions • Premium- Premium deposits can be Single (one time only) or Flexible (ongoing) • If flexible do they reset surrender charges? • Accumulated Value (AV)- Premium and any credited index measured growth • Surrender Value- AV less any surrender charges • Policy Anniversary- Date of policy issue. • Index Anniversary- Date Index values are measured. (if this date falls on a non-trading day, carrier will measure the previous or following trading day) note: Index Anniv and Pol Anniv may be 2 different dates

  7. Minimum Guarantees • Can be applied to Premium (Prem) or Accumulated Value (AV) • Premium Guarantee – Most common, Compound your premium (or % of) at set rate and compare to Accum Value, client gets the higher value. (2 lines of money) E.g… 90% of premium at 3% • 100K prem, 10yr contract - 90K @ 3% for 10yrs = $120,952 or 1.92% AEY • Accum Value Guar- If credited index earnings are not at least as high as set min. then entire AV is credited min. guarantee (1 line of money)

  8. Index growth adjusting factors • Participation Rate (PR)-Specifies the % increase in the index growth that you will “participate” in. • Spread- AKA:Margin, Fee - Subtracted from index growth before earnings are credited. • Cap Rate- (Cap) 2 types- • INTEREST CAP-Caps the max. amount of interest you can earn after application of adjusting factors (PR, and spread). • INDEX CAP- Caps Index growth before applying adjusting factors • Performance Trigger Account Credited Interest- Specified interest rate credited to account as long as index does not decline • Adjusting Factors can change on policy anniversary typically and are subject to min/max

  9. Annual Reset/Ratchet Point to Point • Most Popular Design • Easiest to understand / explain • Compares the index starting value on the policy’s index start date to index ending value on the index anniversary.(Index Anniv and Pol Anniv may be 2 different dates) • Apply adjusting factors i.e.. PR, CAP, Spread • Earnings are locked in and cannot be taken away (Ratcheted)

  10. Annual Reset/Ratchet Pt to Pt 100K prem, 100% PR, 6.00% earnings cap, No spread. Min Guar = 2% on 100% of AV (Lafayette Life Marquis Advant-Edge) Year 1 • 1st year index start date 1/15/05 index value = 900 1st year Index Anniv 1/15/06 index = 980 • 980-900=80 pt increase; 80/900= 8.89% index growth • Apply 100% PR=8.89% then cap at 6.00%. • You earn 6.00% for this contract yr. • AV @ end of yr 1 = $106,000

  11. Year 2 • Beginning of year 2 AV= $106,000 • Year 2 Index start date 1/15/06, value = 980 • Compare to 1/15/07 index value = 970 • 970-980= -10 (Negative year but no reduction to AV due to ratcheting) • Minimum Growth Guaranteed • 2% on 100% of AV = 2% on $106,000 = 108,120 End of Yr 2 AV = 108,120 (1 line of money)

  12. Bi-Annual Reset/Ratchet point to point • Similar design as Annual Reset/Ratchet with the difference being that it compares index growth over 2 years • Will have higher caps & PR, lower spreads • Risk of having 2 years pass with no AV growth

  13. Annual Reset/Ratchet with Monthly Average • Common design however a bit more complex than Ann Reset Pt to Pt • Compares index starting value on the policy’s index date to the average index value on “X” day of the month for 12 months after the index starting date. • Apply adjusting factors; PR, Cap, Spread • Gains locked in. • Index Growth typically reduced due to the effects of averaging…averaging takes the “high’s” and the “low’s” and gives you a “middle ground”

  14. Ann Reset/Ratchet w/ Mo. Avg.100K Premium, 100% PR, 0.10% spread. No Cap. Min Guar = 100% of prem at 1.50% (Jefferson Pilot Opti-Choice 7) Year 1 • Pol index date 1/15/04 index value = 1000 • Add close of index value for 2/15/04 + 3/15/04 + 4/15/04 … + 1/15/05 = X • Divide X by 12 = Mo Avg. index growth • If X/12 = 1053 then 1053-1000 = 53 ; 53/1000 = 5.30% average index growth • Apply Adjusting Factors - PR, Spread, Cap • 5.30% mo avg index growth x 100% PR = 5.30% , less 0.10% spread = 5.20% • AV at end of yr 1 = $105,200

  15. Annual Reset w/ Monthly Average continued Year 2 • Accum Value = $105,200 • Pol index date 1/15/05 index value = 1100 • Avg index value on 15th day of month for next 12 mo = 920 (Negative index return) • No reduction to AV (Ratcheting) • Min Guar Value = 100K @ 1.5% for 2yrs = $103,023 • If client cancels they get the higher of $105,200 or $103,023, less surrender charges (2 Lines of Money) • End of Yr 2 AV = $105,200

  16. Key Points to Consider w/ Mo Avg • Last averaged point is the starting point for following year • Typically Higher PR & Caps, Lower Spreads (may be misleading to clients/agents) • Averaging will push values toward the middle; in a rising market avg will be lower than the end point, in a declining market avg will be higher than the end point • More complex design

  17. Annual Reset/Ratchet Performance Trigger Account (PTA) • Newer EIA crediting method • Credits a specified interest rate as long as measured index does not decrease • No adjusting factors used, just a fixed credited rate as long as no index decrease • Earnings will be credited in a flat market • Easy to explain and understand • Limited upside potential • Works best in a flat or slightly increasing market

  18. Annual Reset Ratchet Performance Trigger Account 100K deposit, 6.90% PTA crediting rate. Min Guar=100% of Prem @ 1.75%Jefferson-Pilot New Directions I-66 Year 1 • Pol index date 1/15/04 index value = 1000 • Pol index Anniv 1/15/05 index value = 1000 • There has not been a decline in the index • Monies allocated to this account earn 6.90% • Accum Value @ end of yr 1 = $106,900

  19. PTA example Continued Year 2 Beginning of year 2 AV = $106,900 • Pol index date 1/15/05 index value = 1000 • Pol index Anniv 1/15/06 index value = 900 • No index growth • Client does not lose money, but does not receive any credited interest • Accum Value @ end of year 2 = $106,900 • Minimum Guarantee account = $103,530 (100K compounded at 1.75% for 2 years)

  20. Monthly Point to Point Annual Reset • Newest Design Available • Higher Upside potential • Compares percentage increase/decrease in market index on a monthly basis. • Monthly increases are capped, decreases are not. • Sum of positive and negative months are added up at the end of the year. Positive values are credited to AV. • BEWARE !!!- Can easily be misrepresented to clients

  21. Pol issue date 8/1/04 S&P = 1000 9/1/04 S&P=1050 (1050-1000= 50/1000= 5% increase) capped at 3%. Growth = + 3% 10/1/04 S&P=900 (900-1050= -150/1050= -14.29% decrease) 11/1/04 S&P = 1200 (1200-900=300/900=33% increase, capped at 3%…. Add up all positive and negative months +3, -14.29, +3… Earnings are credited on policy anniversary and locked in annually (Ratchet) Pros- Large potential upside Cons- Upside growth is capped, downside is not. Ann Reset/Ratchet w/ Mo. Pt to Pt. 100K Premium, 3% monthly cap, Min Guar = 90% of prem at 3%

  22. Regulatory Environment • SB 620- CA/Similar in other States • 8 Hours Annuity CE; 4 Hours Ethics Follow up • Senior Visit Disclosure • Tax Implication Disclosure • Suitability Disclosures • NASD NTM 05-50 • AML

  23. CPS EIA Annuity Carriers • Allianz Life (AM Best A) • AIG/American General (AM Best A+) • Fidelity & Guaranty (AM Best A) • Equitrust (AM Best A) • Lafayette Life (AM Best A+) • ING/USA (AM Best A+) • Business Men's Assurance (AM Best A) • Jefferson Pilot (AM Best A++) • Lincoln Benefit/Allstate (AM Best A+) • SunLife (AM Best A++) • Standard Insurance Co. of Oregon (AM Best A) • And many others…

  24. CPS Insurance Website www.CPSInsurance.com • Product Info; Current Rates; State Availability • 41 Compliance approved client handouts • 25 Broker focused training handouts • Lic/Contracting & Application Forms • Real time case status • Carrier strength & ratings info - Vital Signs • Client EIA Presentation Work Sheets • Multimedia Client and Agent Presentations • NEW EIA SECTION !!!

  25. Did You Know ? CPS Insurance… • Has been in business for 31 years • Is contracted with over 50 highly rated carriers • National Wholesaler licensed in all 50 states • Is the LARGEST independently owned insurance wholesaler in the nation • Has 2 in-house Underwriters as well as an Advanced Planning Attorney • Provides sales/planning assistance for advanced concepts- Buy-Sell, 412i, Charitable Giving, etc. • Has Full Service Life, LTC and Annuity departments

  26. CPS Annuities Contact Info (800)326-5433 Annuity@cpsinsurance.com Pete Buechler CLU, FLMI, AAPA x 148 Dean Walsh AAPA, ACS x 143 Eric Neilsen x 126 Nicole Samson AAPA, ACS x 123

  27. Thank you CPS Annuities

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