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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

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
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
what is an equity indexed annuity eia
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
typical client
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
types of eia s
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…

definitions
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
minimum guarantees
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)
index growth adjusting factors
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
annual reset ratchet point to point
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)
slide10

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
year 2
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)
bi annual reset ratchet point to point
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
annual reset ratchet with monthly average
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”
slide14

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
annual reset w monthly average continued
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
key points to consider w mo avg
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
annual reset ratchet performance trigger account pta
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
slide18

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
pta example continued
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)
monthly point to point annual reset
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
ann reset ratchet w mo pt to pt 100k premium 3 monthly cap min guar 90 of prem at 3
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%
regulatory environment
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
cps eia annuity carriers
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…
cps insurance website
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 !!!
did you know
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
cps annuities contact info
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

thank you

Thank you

CPS Annuities