Great-West Financial Launches Index-Linked VA with Buffer and Multiple Floors

Capital Choice, Great-West Financial’s new index-linked variable annuity, offers advisors potentially higher yields than what is available through banks, a company executive said Monday.

The product also allows for market participation with limited downside.

The new single-premium deferred index linked variable annuity is being offered on a commission and fee basis, which will appeal to both independent broker-dealers and registered investment advisors, the company said.

The variable annuity was launched last week.

“People want higher yields from products instead of certificates of deposits or cash to get where they need to go,” said Lance Carlson, head of distribution for Greenwood Village, Colo.-based Great-West Financial.

“It's a wonderful conversation to have with clients in this market cycle – with people who are not worried about income yet, but want to have their money grow,” he said.

The new index-linked variable annuity enables advisors to choose from four well-known index-linked options: S&P 500 Price Return Index, Russell 2000 Price Return Index, NASDAQ-100 Price Return Index and MSCI EAFE Price Return Index.

Capital Choice also offers a buffer and multiple floor options that can be employed in a single contract to give advisors some flexibility when working with clients whose needs may vary. Buffers offer protection from some market loss but not extreme market loss

Growing Segment

Variable annuities with buffers are growing rapidly in a shrinking overall variable annuity marketplace.

Analysts estimate about $9 billion worth of buffered variable annuities will be sold in 2017, up from just a few million a decade ago.

Capital Choice comes with a six-year withdrawal charge, the company said.
Mortality and expense charges of 1.2 percent of the account value means the product offers a higher participation rate than some competing products with no M&E fee, Carlson said.

The contract comes with a return-of-premium death benefit as standard and investors up to 90 years old are eligible to purchase the product. Some competing products are only available to buyers no older than age 85.

“As individuals approach the later stages of their working years they want to minimize their exposure to market risk while still taking advantage of upside potential,” said Bob Shaw, president of Individual Markets at Great-West Financial, in a news release.

The Floor

A key feature of Capital Choice is the ability for advisors to choose two distinct protection options in the contract year.

One option offers a floor below which account values will not fall.
Floors are set at 0 percent, -2.5 percent, -5 percent, -7.5 percent and -10 percent.

Contract holders with a -10 percent floor will never see account values shrink beyond that regardless of market downturns, in a given year

A zero floor means Capital Choice contracts work much like an indexed annuity in which there is no loss of principal and floors appeal to investors unsure about market performance or nervous in the face of rising volatility, Carlson said.

In exchange for selecting a -10 percent floor, contract holders benefit with a 11 percent cap in a rising market, as an example noted by the company. Rates are set every two weeks based on the current market environment, according to the product prospectus.

The Buffer

The other option is a buffer that protects account values when the market drops up to 10 percent.

As an example, selecting the -10 percent buffer means that if the index falls 25 percent, the contract holder incurs an account value loss of just 15 percent. If the index rises, gains are capped at 12 percent.

No other buffer protection limits come with Capital Choice. Buffers offered by other insurers buffer investors from steeper losses.

Variable annuities offered by other companies usually offer either a buffer or a floor, but few offer both options in the same contract as Capital Choice does, Carlson said.

Electing floors and buffers to mix and match during the contact year allows the insurer to offer better cap rates and a more diversified and flexible experience where advisors can better hedge their client’s risk.

The index strategy term lasts one year before it can be reset, the company said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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