BISA Magazine - Quarter 3, 2016 - 32

SPECIAL SUPPLEMENT: SPOTLIGHT ON ANNUITIES Volatility Controlled Indices Strengthen the Appeal of Fixed Indexed Annuities By Rod Mims W e have a natural tendency to become more risk-averse as we get older. Even so, the road to safety is not always easily traveled - especially for boomers, a market-savvy generation whose nest eggs rose (and fell) with the 401(k). In today's environment, the path to a financially secure retirement may seem to present a choice between two lessthan-satisfying options. While a market downturn can have a disproportionate impact on invested assets with a shorter time horizon, persistently low interest rates dilute the appeal of fixed income alternatives. Growth potential Fixed indexed annuities are an attractive solution for retirement portfolios because they address both of these concerns. First and foremost, they don't require investment in the stock market. Instead, the annuity contract's accumulated value can be allocated to one or more strategies that credit interest based in part on any upward movement of a market index. While interest earned during any given crediting period may be zero, it will never be less than zero - no matter how poorly the market performs. And once earned, interest is "locked in" and cannot be lost due to future market downturns. Second, indexed crediting strategies are designed to capture growth potential as markets expand over time. This valuable feature has been the focus of recent innovations in the indexed annuity space. One such innovation - the volatility controlled index - deserves a closer look. Avoiding big swings during volatile times helps produce more stable, predictable returns. Returns may not be as high over time as the "pure" index, but the added stability of a volatility controlled index can benefit both insurers and clients. Using volatility controls to produce more stabilized returns A volatility controlled index seeks to manage fluctuations in an underlying index. It typically consists of two components: the underlying index and a stable asset, usually cash. A rules engine rebalances assets between the two based on measured market volatility. The idea is to manage volatility to a specified target. It's a bit like a thermostat: adjusting the "mix" of heating and cooling to achieve the desired room temperature. Avoiding big swings during volatile times helps produce more stable, predictable returns. Returns may not be as high over time as the "pure" index, but the added stability of a volatility controlled index can benefit both insurers and clients. Because volatility is a primary driver of hedging costs, reducing volatility risk allows for higher caps and participation rates or lower spreads. Strategies incorporating volatility controlled indices blend seamlessly into the fixed indexed annuity's basic Advertorial 32 www.bisanet.org accumulation story. When framing the discussion it's important to keep two things in mind. First, all crediting strategies operate by the same basic rules. While it's possible to receive zero interest credits, credits will never be less than zero; in order to provide that guarantee, the crediting strategy limits upside potential in some manner. Second, no crediting strategy is a "silver bullet" that provides superior accumulation potential in all conditions. Each may offer the potential for enhanced growth in specific market environments, so product selection is critical - and allocating premium across several strategies may help limit periods with zero interest credits over the life of the contract. Rod Mims is SVP of national sales at Athene. He is a results-driven business leader with 25 years of sales and sales leadership experience at several financial service organizations, with broad distribution experience including independent marketing organizations, bank, wirehouse and independent broker/dealers. http://www.bisanet.org

Table of Contents for the Digital Edition of BISA Magazine - Quarter 3, 2016

Table of Contents
BISA Magazine - Quarter 3, 2016 - Cover1
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BISA Magazine - Quarter 3, 2016 - Table of Contents
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BISA Magazine - Quarter 3, 2016 - Cover3
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