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In her latest article for Investment News, Darla Mercado tells why “Structured products (are) gain(ing) favor.” Using structured products helps insurance companies continue selling annuities while protecting themselves from too much market risk exposure. Allianz Life Insurance Co. has plans to release a sort of hybrid annuity and structured product after the summer. This will be the newest in a line of products already being offered by insurers. Earlier this month, MetLife’s Shield Level Selector was introduced. This single-premium deferred annuity is a combination indexed annuity and structured product. One of the other products out there is from Axa Equitable Life Insurance Co. Since 2010, they have been offering their Structured Capital Strategies variable annuity.
While these new hybrid products do offer downside protection, there are some limits to their upside and a different value proposition. The products from Axa and MetLife don’t offer living benefits with their annuities. MetLife does offer death benefits with their product though. You can choose a return of premium or a return of account value option for your beneficiaries. Insurance companies have been struggling with offering lifetime income payments as their accounts have taken a hit over the past decade. Products that are structured give them more control over growth without the guarantees that have caused some companies to exit the variable annuity business altogether.
But Allianz Life’s chief executive points out that hybrid products are more complex. Some gatekeepers aren’t keen on the products because they take away some of the benefits that investors really want, but this is another one of those ways that we must all adapt to a new normal. We’ve all seen what can happen when insurance companies get in over their heads. The success is tangible with Axa selling $2.2 billion of its hybrid structured annuity since they introduced the product. The MetLife and Axa products are subject to suitability reviews on structured products. Wells Fargo is not jumping on this new product bandwagon just yet because it lacks the guarantees associated with annuity products.
While traditional variable annuities are tied to mutual funds so that their value can go up or down, these structured variable annuities focus on steady growth from rapid accumulation moving with the markets. You invest indirectly in a particular market over shorter time frames. Any gains are capped and cap rates are adjusted frequently. Insurers also protect you from a certain percentage of downside risk. The fees for these annuities are collected based on the performance cap rate, so they are not static. More training is needed and is already occurring with sales reps and broker-dealers because of the differences in these new products.
MetLife points out that these structured annuities are not here to replace other variable annuity products. These are important new products for people not looking for the living benefits. They provide growth and also offer investors the option to get their money back if needed.
Written by Rachel Summit