Defendants Fend Off Challenge to FIA’s Proprietary Index
October 16, 2019 by Todd Fuller, Carlton Fields
The End or the Beginning for Suits Over Disappointed Index Interest Expectations?
Security Benefit Life Insurance Co. and Guggenheim Partners recently secured an important victory in a class action challenging a fixed index annuity’s proprietary index with a volatility overlay. Various proprietary indexes are being used by the index crediting options of numerous fixed index annuities. A proprietary index provides an alternative to the S&P 500® index by incorporating different asset classes and volatility control mechanisms. The volatility control mechanism shifts between the different assets or asset classes depending on a target level of volatility of the assets or asset classes.
In Ogles v. Security Benefit Life Insurance Co., the plaintiff brought a putative class action against Security Benefit and Guggenheim alleging federal racketeering violations, and a state law claim for unjust enrichment, relating to his purchase of Security Benefit’s “Total Value Annuity” (TVA). The TVA contained several interest crediting options based on a traditional index, like an S&P 500 index, as well as a nontraditional index based on commodities and currencies futures coupled with a volatility overlay, known as the Annuity Linked Trader Vic Index (ALTVI). This particular index is generally thought to perform inversely to equities-based indexes, like the S&P 500. Accordingly, if the S&P 500 decreased, the ALTVI was intended to increase and vice versa, thus providing the opportunity for interest credits in times when index crediting options linked to stocks or bonds might not.
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