Phoenix FIAs Get An Exclusive Index
October 29, 2014 by Linda Koco
Another exclusive index has popped up in the fixed index annuity (FIA) marketplace. This one is an exchange traded fund (ETF)-based index that Phoenix Companies has licensed from Credit Suisse for exclusive use in four of the company’s core FIAs.
“’Core’ FIAs refers to our best-selling products,” Dana Pedersen told AnnuityNews. She is vice president and product officer for Phoenix.
These products are available for distribution by all independent agents, she said, noting there are no restrictions to offering the index only through exclusive or proprietary distribution arrangements.
Called the CS Tactical Multi Asset Index, the index is an adaptation of an existing index the Credit Suisse offers, Pedersen said. Credit Suisse is a global firm that focuses on private banking, wealth management and investment banking.
Phoenix requested the modification so that the index would do what the company and its distributors were looking for, she said.
Having Credit Suisse available in all four products brings some valuable name recognition to the products, Pedersen said, noting that agents may be familiar with the firm as a global brand even if not familiar with its specific businesses and products.
But the major reason that Phoenix added the index is for what it does differently than the other indices in Phoenix’s core portfolio. “It offers 100 percent participation rate after a spread,” Pedersen said. This is on both of the Credit Suisse “index accounts” that Phoenix is offering (a one-year account and a two-year account).
The spread rates can range from 1 percent to 5 percent. After the carrier deducts the spread rate from any growth that has occurred in the index, the policy credits 100 percent of the gain above that.
As a result of that structure, Phoenix believes there will be “more potential for growth after the spread, because there will be no caps,” Pedersen said.
Currently, the spread rates vary by product and feature as well as state of policy issue. A review of the current rates that Phoenix sent to AnnuityNews on Oct. 24 shows that, on one of the policies — Personal Protection Choice — the spread rate on the two-year account ranged from 1.15 percent to 2.35 percent, and on the one-year account, from 2.50 percent to 3.25 percent.
The ranges are higher on other core FIAs. For instance, the chart shows that the spread rates on the Index Select Gold Bonus FIA ranged from 3.95 percent to 4.70 percent on the one-year, and from 2.45 percent to 4.70 percent on the two-year.
The two other FIAs — the Personal Retirement Choice with premium bonus and the Personal Income Annuity — had spread rate ranges that were similar to that of Index Select.
Spread rates can change at the end of an account period (one or two years, depending on account selected). “It is not our intent, however, to adjust the spread beyond market conditions,” Pedersen said, noting that “the volatility control aspect of the index should allow for the spread to stay fairly level.”
The other indices in Phoenix’s core portfolio “do not offer full participation after a spread,” Pedersen said. So, by adding the Credit Suisse index accounts to the portfolio, Phoenix is providing producers and their clients who more indexing options to consider — ones offering “potentially higher upside.”
It would be too expensive in the current interest environment to offer a similar spread structure with more common indices, she said.
There are no limits on the percent of premium that a client can put into the Credit Suisse index accounts, but the company expects that agents will encourage customers to diversify across accounts offered in the products.
Credit Suisse directly manages the index. The index allocates across a selection of 10 ETFs, offering exposure to four asset classes, and “dynamically re-balances” according to pre-designed algorithms, Pedersen said.
Why use an exclusive index to do this? “Our producers and independent marketing organizations (IMOs) were asking for an index that would provide specific outcomes (as opposed to a specific index). We felt the only way to achieve those outcomes was to have an exclusive index.”
In particular, the agents were asking for an index that would offer higher upside potential than is available with more commonly used indices, Pedersen said.
The company will be offering training on the index not only to new agents but also to existing agents. Existing agents are not required to take the training, Pedersen said, but “we strongly suggest they do take it before selling FIAs with the index elected.”
Phoenix views the new index as a valuable option with potential for 100 percent upside above the spread and with volatility control. However, the index “doesn’t necessarily make the annuities suitable” for particular clients, she said. “We want people to buy the products,” she said, pointing to the FIAs themselves. People will buy these products for their guaranteed income, the combination of benefits they make available, and the guaranteed floor along with the upside potential, she said.
The products having the new accounts are currently approved in all but four states.