ANNUITRACKTM
Reviewing the Performance of Fixed, Indexed and Variable Annuities
The Annuity Review is an in-depth report on the contractual provisions and investment performance of an annuity. Each annuity review evaluates three key areas.
Carrier Strength - The assessment of the financial strength of the underwriting insurance company is based upon acceptable standards set forth by nationally known and accredited rating services.
Competitiveness - RIC benchmarks the performance of variable, indexed and fixed annuity contracts against a market composite of annuities. RIC categorizes contract performance as: Competitive, Lacking Competitiveness or Non-Competitive.
Risk Assessment Category - This review component provides guidance as to the frequency of ongoing oversight for each annuity contract based upon the type of annuity, the accumulated value, the carrier, contract or investment performance and any noteworthy observation identified by the analyst.
Annuity Types
Variable Annuities - This type of annuity has various management fees and expenses associated with it. These expenses can include a Mortality & Expense Risk Charge, an Administrative Charge, and an Annual Contract Charge. An average of each of these expenses is used for the market composite. The variable contract also has an expense ratio for each of the underlying sub-accounts. The weighted average expense ratio is used for the current allocation and a weighted average expense ratio for the market composite is calculated. RIC projects values at 0%, 6%, and 8% for 1-year, 5-year, and the closer of maturity or life expectancy. These projected values are net of fees and use the accumulated value for the inforce contract and the net surrender value for the market composite. The calculated values for the inforce contract and the market composite at an 8% gross earnings rate are used to calculate a competitive ratio.
Fixed Annuities - Fixed annuities perform according to the provisions and stated crediting rates within the annuity contract. RIC calculated an average crediting rate for a market composite. The inforce and market composite crediting rates are used to project values for 1-year, 5-year, and the closer of maturity or life expectancy. These projected values use the accumulated value for the inforce contract and the net surrender value for the market composite. The calculated values for the inforce contract and the market composite at the closer of life expectancy and maturity are used to calculate a competitive ratio.
Indexed Annuities - An indexed annuity has various contract specifications that influence the performance of the contract. The specifications can include a participation rate, premium bonus, current and minimum cap on the underlying index, and the index floor. An average of each of the contract specifications is used for the market composite. RIC provides simulated values based on the past performance of the underlying index and account for contract specifications. The values are calculated for the number of years the contract has been inforce, 5 years, 10 years and 20 years. Values are simulated for the inforce contract, the market composite and the underlying index. The inforce contract uses the accumulated value, while the market composite and index use the net surrender value. The simulated values for the inforce contract and the market composite over 10 years are used to calculate a competitive ratio.
