Delaware Life has decided to get into the fixed index annuity (FIA) market. Its first offering is a policy that includes two volatility control index options sponsored by Deutsche Bank, the global banking giant based in Germany.
Called Retirement Chapters 10 Fixed Index Annuity, the policy will benefit from the heft that the Deutsche Bank name and indexes can provide.
This is the first time the global bank has a product included inside a U.S. annuity product, Tom Mullen, Delaware Life’s head of marketing, said in an interview with InsuranceNewsNet. But the bank already has products on the shelves of U.S. firms outside the annuity market — for example, through broker/dealers — so the brand has widespread recognition.
Value of name recognition
Company officials believe this recognition will help drive attention to Delaware Life, which is still a relative newcomer in U.S. annuity circles.
This newcomer status is despite having some annuity DNA in the corporate bones. Delaware Life was formed out of the mid-2013 purchase of the U.S. annuity business and certain life businesses of Sun Life Financial. The buyer was Delaware Life Holdings, a company owned by some shareholders of Guggenheim Partners.
The Sun Life connection may ring bells with FIA producers. In the late 1990s and early 2000s, Sun Life was among sales leaders in the then-budding FIA market in the U.S. In addition, the carrier had been a top-selling variable annuity writer in the U.S for many years. But Sun Life stopped writing new U.S. annuity business at the end of 2011. Now, even though today’s FIA professionals may recognize the Sun Life name, they are uncertain about the successor carrier, Delaware Life.
A key part of the company’s strategy to fix that recognition problem is to enter the FIA market, Mullen said. “We believe the FIA market has had strong growth to date, and that new policy designs will propel even more growth in the future.”
The company realizes that the market is teeming — at the end of 2014, it had 52 FIA players and industry sales for the year of nearly $46.9 billion, according to Wink Inc. Despite the competition, Delaware Life believes its new FIA’s contemporary design and “exclusive” distribution arrangement will turn heads.
Design and distribution
About the design, the Retirement Chapters 10 FIA comes with:
- Four options for earning interest. These include the two Deutsche Bank-sponsored indexes, an S&P 500 Index and a fixed account.
- A variety of crediting methods. These methods differ by index option.
- A 5 percent first-year premium bonus that vests over 10 years.
- A built-in waiver of withdrawal charges for nursing home confinement or terminal illness.
- An optional rider that guarantees lifetime withdrawals for income with a 4 percent annual roll-up during the first 15 years.
About distribution, Mullen said the FIA will initially be distributed exclusively through seven select insurance marketing organizations (IMOs) as well as a distributor connected to a number of banks. These are the same channels that distribute the carrier’s first product, a multi-year guaranteed annuity that Mullen said “has sold close to $2 billion” since its late 2013 debut.
Why IMOs? They are very comfortable with FIAs, Mullen said, and they routinely perform due diligence on the validity of the underlying strategies in FIA indexes. The Deutsche Bank indexes can stand up to this scrutiny, he maintained, noting they have an “interesting methodology” and have an “institutional track record” that IMOs prefer. He believes the indexes provide an alternative to more commonly available indexes, and that IMOs will value this differentiation.
IMOs also look closely at company ratings. In November, A.M. Best revised the company’s outlook to stable from negative, and it affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” for the two Delaware Life carriers — Delaware Life Insurance Co. and Delaware Life Insurance Co. of New York.
Exclusive distribution notwithstanding, the company has its eye on expanding through broker/dealers (B/Ds) too. Some B/Ds have greater receptivity to FIAs today than in years past, Mullen noted. Discussions with B/Ds are underway right now, he said, adding “we may tweak our FIA to fit the needs of this channel.”
Both Deutsche Bank-sponsored indexes are designed for volatility control. They are:
The CROCI Sectors III USD 5.5% Volatility Control Index. This offers global equity exposure via the bank’s CROCI Sectors Index. (CROCI refers to the bank's proprietary Cash Return on Capital Invested valuation methodology.) The index also has “a cash component used to smooth overall volatility,” according to product materials.
The Momentum Asset Allocator 5.5% Volatility Control Index. This is a multi-asset strategy that allocates across equities, interest rates, gold and cash. It allocates more to assets showing upward momentum over the trailing nine months, and it “uses a volatility control mechanism to help limit overall volatility,” a brochure said.
Why doesn’t Delaware Life return to the variable annuity roots of its Sun Life ancestor? “We hope to get into variable annuities later on,” Mullen said. For now, “selling FIAs will enable us to balance out our annuity book, more than half of which is variable annuity business from Sun Life.”
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at email@example.com.
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