Insurance holding company Western & Southern Financial Group said in mid-September that it would soon issue a fixed index annuity (FIA) that includes a Goldman, Sachs & Co. proprietary index option. “What kind of FIA will this be?” industry people wanted to know. “And what is global investment firm Goldman doing in there with a proprietary index?”
The annuity is rolling out today, and with it come some preliminary answers. The policy is Indextra, a single-premium FIA issued by Integrity Life Insurance, a subsidiary of Western & Southern Financial.
The centerpiece of the policy is the GS Momentum Builder Multi-Asset Class Index, a proprietary index option that Goldman custom-designed for the product, Mark E. Caner told InsuranceNewsNet. Caner is president of W&S Financial Group Distributors, the subsidiary that is distributing the policy.
Western & Southern believes the option will turn heads due to Goldman’s widespread recognition as a global financial services company and to the differentiation that the exclusive index will bring. The fact that the Western & Southern life companies have a Comdex ranking of 96 should get attention too, he predicted. Published by EbixExchange, Comdex is the average percentile of a life insurance company’s ratings, with 100 being the highest possible score.
GS Momentum Builder is one of four “allocation options” in the new FIA. (The other three are more traditional FIA index options, such as the S&P 500 Index, 1-Year Point-to-Point; the S&P 500 Index, 1-Year Monthly Average, and a fixed account.)
The Goldman option aims for broad diversification in index-linking via tracking of six asset classes that comprise the index. These classes are U.S. equity, international equity, U.S. bonds, international bonds, commodities and money market. The product literature says Goldman will rebalance the allocation between those asset classes on a monthly basis. The goal is to deliver “lower volatility plus the potential for higher return than a fixed account,” Caner said.
“The index is rules-based, so there is no manager making the calls” on the monthly allocations, Caner said.
As for the interest crediting, this is a three-year point-to-point index. At the end of each index period, the option will credit positive interest, if any, to the FIA’s account value. (By comparison, the other three options credit interest, if any, on an annual basis. Caner explained this feature provides choice for customers who don’t want to wait for three years to see credited interest.)
The crediting rate in the Goldman index will equal the point-to-point return of the index over the three-year period, adjusted by the participation rate which can range from 10 percent to 100 percent or more. The company declares a participation rate at the start of each new crediting period.
The three-year approach enables Integrity Life to offer index participation with no interest rate cap, Caner said, adding “there is also no spread.” The three-year time frame is the trade-off for the no cap/no spread structure. It is also easy to explain and understand, he said.
The company thinks the design will appeal to the target market, Caner said, noting the target market is the conservative buyer who is seeking both accumulation and retirement income protection.
Other product features have the conservative buyer in mind too, he said. These include an optional guaranteed lifetime withdrawal benefit (available for an extra cost) and an included guarantee of the minimum account value (which guarantees the minimum account value will equal 107 percent or 110 percent of initial premium, at the end of the policy’s seven- or ten-year surrender charge period, respectively). The policy includes a death benefit guarantee too.
As Caner sees it, the annuity is for people who want to “go bowling without gutter balls being possible.”
The index structure fits the “hybrid index” definition that Wink Inc. now uses in reporting on FIA indexes.
In an interview with InsuranceNewsNet earlier this year, Sheryl Moore defined a hybrid index as an index of several other financial indexes. Moore is president and chief executive officer of Wink Inc., an index product resource.
A few years ago, such indexes were virtually unheard of in FIAs. But they are on a fast track now. By 2014, close to 40 of the 299 FIAs in the Wink database offered by eight carriers had hybrid index options (along with other types of index options), Moore said. In second quarter, 31 percent of all FIA sales premiums went into hybrid options, although only a few of those indexes garnered substantial volume.
Some state insurance regulators have voiced concerns about less traditional index options like the hybrids. Their worry is that the features are so unique, or so new, that customers will not be able to follow the indexes in the newspaper or on a financial website, or be able to obtain independent analysis of the hybrids in their policies.
Caner acknowledged this concern but said that, although the Goldman index is new and proprietary, it already has three ticker numbers (for instance, the ticker on Yahoo is GSMBMAC.SG) that people can check. It also has a CUSIP number, he said. (CUSIP numbers identify most securities).
In addition, he said, policyholders can check out the seven indexes that are components used by the Goldeman index option.
Producers who are dual-licensed (insurance and securities) and who work primarily in securities may be able to grasp the momentum index concept fairly easily. But what about producers who are insurance licensed only and therefore are unfamiliar with terms like multi-class index or component terms like “equity futures rolling strategy”?
Caner said all producers will receive substantial training before they can sell the policy. This includes not only the mandatory continuing education required by the states, but also the viewing of a video on the Goldman index, face-to-face sessions on the product and features, webinars, etc.
“It is imperative to us that the agents properly understand the product, how it works and the components,” he said, adding that the training will be conducted from the standpoint of suitability. “We want to be sure there is no misunderstanding.”
Indextra is designed for distribution through banks, broker/dealers, independent agents and independent marketing organizations (IMOs). The minimum premium is $15,000. The policy is currently available in all except seven states.
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