Many of you remember the uncapped crediting strategies of the mid 1990’s with 80-95% participation on the S&P- the results were phenomenal-and unsupportable. As always, our industry learned as it went along and began to offer 6-7% caps with 100% participation; the rate and option costs at the time supported it and clients loved it-sales were good. Today, as rates have deteriorated and option costs have risen, the supportable caps have become less attractive and companies have answered the bell with the latest generation of crediting strategies that charge reasonable spreads on “Volatility Controlled Indexes.”
These “VCI’s”, incorporate strict rules, based strategies to limit losses and savings are passed on to the end user (your client) in lower spread costs. The trade off, ‘cause you know there is one, is that the volatility controls that protect the bottom side results, also limit the upside results, leaving your client less likely to have those breakthrough upside years that they might have enjoyed with monthly pt to pt cap during the best years.
Two of our most popular VCI’s are the ML Strategic Balance Index on the American General Builder product and the S&P 8% volatility control available on the New Athene Performance Elite. It is notable that neither of these products offer income riders, a trend in separating the best income opportunities from the best accumulation potential that you will see more of in the coming months. Want to see which of many options will fit? Give us a call for your next illustration, you will be pleasantly surprised!