By Linda Koco
Contributing Editor, InsuranceNewsNet
May 5, 2011 -- At the behest of their distribution channels, two annuity
companies are offering commodity accounts as part of their indexed annuities.
Symetra Financial, Bellevue, Wash., is offering the S&P
GSCI commodity index in two interest crediting strategies or accounts —
point-to-point and monthly average. The strategies are available in the
company’s new indexed annuity, the Symetra Edge Pro, which also offers
strategies using the S&P 500 index plus a fixed account.
The S&P GSCI tracks 24 commodities in the energy,
industrial metals, agricultural, livestock and precious metals sectors. Many view it as a measure of commodity price
movements and inflation in the world economy, according to Symetra.
The other commodity move comes from Legacy Marketing Group.
Calif. marketing firm
says it will include its Gold Commodity strategy in a new series of three
proprietary indexed annuities it will debut this summer. The strategy bases interest crediting on changes
in the price of gold, as published in the Wall
Street Journal, from the beginning to the end of the specified term.
Legacy already offers the Gold Commodity strategy in a
series of three proprietary index annuities issued by Investors Insurance
Corp., Jacksonville, Fla. subsidiary of SCOR Global Life U.S. Re, a
member of SCOR, France. This product offers other strategies as well.
At least 12 other indices are available in indexed annuity
interest-crediting strategies today, according to AnnuitySpecs.com, Des Moines, Iowa.
These include the well-known S&P 500, Dow Jones Industrial and the
So. why offer strategies linked to performance of a
commodity or a commodities index, both of which may have less widespread name
For one thing, producers are asking for the option, says Jack
Marrion, president of Advantage Compendium, St. Louis.
“At least one producer in every agent audience I talk to
asks about when a gold commodity account or index option will become
available,” Marrion says.
One reason for this might be that funds allocated to a
commodity-linked account inside an index annuity have the potential to generate
higher interest crediting than the client might get in other options, Marrion
speculates. “This would depend on pricing trends, however.”
In addition, it’s possible that funds linked to changes in a
commodity index or price “might zig when other accounts zag,” he says, meaning
the commodities-linked accounts might perform well when others do not. Advisors
may view that as advantage for some clients, he says.
Dan Guilbert, executive vice president-retirement division at
Symetra, reinforces that view. In five of the eight market downturns over the
last 40 years, he says, commodities went up when equities declined.
Commodities and equities are not always in negative
correlation, he allows. But the fact that commodities often do better when
equities are underperforming is a “compelling” story, especially when a client
can link to a commodity index inside an indexed annuity, he maintains.
Policyholders are not getting a “naked exposure” to the
commodities market inside the indexed annuity, he explains. They are getting
the upside potential from the interest crediting that links to the commodities
index, but if the index goes down, the minimum performance guarantee in the
annuity means the client won’t lose money, he says.
Flexibility is another advantage, according to Diane Shermi,
director-product management at Legacy. The Gold Commodity strategy in the PremierMark
indexed annuities enables advisors and clients to accommodate changes that may
occur in the environment and their own lives, she explains.
For instance, due to changes in the commodities market,
policyowners may want to move into or out of different strategies, Shermi says.
The Gold Commodity strategy provides them with them one more option for that
purpose. In annual point-to-point index
annuities, policyholders could move the money once a year, if they want.
Likewise, for agents. They may not recommend putting money
in the Gold Commodity option right away, Shermi says, but “they want to have
the option available to the client down the road.”
Diversification is major factor, too, says Guilbert. Many
customers in Symetra’s target market—people in their 60s and 70s with
investable assets of several hundred thousand dollars to $2 million—are already
invested in U.S.
equities and bonds. For them, having access to an account that links growth to
movement of a commodities index would help them diversify their holdings, he
The insurer’s distribution partners told the company that
they wanted this type of differentiation in an indexed annuity, he adds.
It’s true that some people may not understand commodities,
or they may be less familiar with them than with their core asset classes,
“But they feel commodities every day when they go to the gas
pump,” he says. He thinks that advisors will be able to help index annuity
clients understand the commodities index in the Symetra product. Marketing
materials from the company will also help.
Marrion believes that many people do understand commodities,
or they understand them as well as well as they understand stocks. “In fact,”
he says, “commodities may actually be easier for some people to understand than
stocks,” if for no other reason than that people already know that the prices
of food, gas and gold are going up.
Shermi thinks the awareness of gold and the rising price of
gold helps with customer understanding of the Gold Commodity strategy. “People
always feel comfortable with gold, and they know that in some periods, it’s a
good hedge,” she says.
More indices now
The fourth quarter 2010 Indexed
Sales and Market Report published by AnnuitySpecs shows that the number of
indices available for interest crediting inside index annuities is increasing.
The report shows that 12 indices were available in products in that quarter, up
from seven the year before.
Indexed annuities may also offer fixed accounts.
proprietary indexed annuities are available in the majority of states where
Investors Insurance does business. Their distribution is through independent
agents who place business with Legacy.
It's not just indexed annuities
options are starting to make their way into variable annuities too. Just
this week, for example, Jefferson National Life, New York,
N.Y. and Louisville,
Ky., added a gold bullion
tracking portfolio to Monument Advisor, the company’s flat-fee variable
Avant Tracking Fund, the portfolio is one of over 330 account options in the
policy. Jefferson National says the fund has a patent pending structure that is
designed to track the price of gold bullion itself.
bullion offers a significant difference in performance from Gold mining
stocks,” the insurer says in announcing the feature, adding that it is “an
excellent long-term retirement asset, and provides powerful diversification for
Linda Koco, MBA, is
a contributing editor to InsuranceNewsNet, specializing in life insurance,
annuities and income planning. Linda can be reached at mailto:email@example.com.