Insurers employ big teams of actuaries and investment managers to make complicated products look as simple as vanilla ice cream.
Security Benefit has one example: Its 1-year-old RateTrack Annuity contract, a fixed annuity with rates that can rise with the London Interbank Offered Rate.
The Topeka, Kansas-based company bills the product as an unusual kind of fixed, but floating-rate, annuity product. The product is a fixed annuity. It sounds like an indexed annuity, but with a crediting rate that happens to be linked to Libor, rather than the performance of a stock index.
So, how is the contract different from an indexed annuity with a Libor-linked crediting rate option?
The difference has more to do with the financial machinery inside the annuity than how it looks to the customer, according to Doug Wolff, president of Security Benefit’s Security Benefit Life Insurance Company unit.
The current version of the contract is a fixed annuity that offers the purchaser the choice of a 5-year guarantee period or a 7-year guarantee period. Security Benefit Life agrees to pay a base rate throughout the guarantee period, along with an extra amount based on the 3-month Intercontinental Exchange Libor U.S. Dollar rate, or 3-month ICE Libor rate.
Today, for example, the purchaser of a RateTrack contract with a 5-year guarantee could get a guaranteed rate equal to 2.38%. That’s the sum of the 1.2% base rate for the guarantee period and the 1.18% 3-month ICE Libor U.S. Dollar rate.
Security Benefit Life will adjust the total crediting rate to reflect changes in the Libor-linked amount at every contract anniversary.