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Compare Variable Annuities With Non-Guaranteed Portfolios: Idea File

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Hedgeness Inc. has an idea: Offer insurers, financial professionals, and others interested in variable annuities a data analysis tool they can use to compare existing annuity contracts with one other; existing contracts with hypothetical contracts; and real contracts with the performance of investment portfolios that come without any guarantees.

The Chicago-based company is already using the tool in-house, to support consulting projects.

Last summer, Hedgeness showed off the capabilities of its system by preparing a study comparing the value of the guaranteed lifetime withdrawal benefits riders available with seven different variable annuity contracts.

(Related: Data Analytics Firm Develops Variable Annuity GLWB Value Ratio)

Hedgeness plans to begin selling the system as a cloud-based product, that clients can play with on their own, sometime in the next three months, Singh said in a recent interview.

The company came to life in 2016.

The company is using a variety of data streams, including streams reflecting the performance of the options contracts used inside variable annuities, to model the performance of the annuities preloaded into the system, and of other real and hypothetical products and portfolios.

Hedgeness says the system can handle comparisons involving factors such as income guarantee rates, total expenses, asset-allocation requirements and step-up frequency; the interaction of annuity holder age and withdrawal rates; and the annuity holder’s level of risk tolerance.

Some insurers are beta testing the system now. A typical advisor might have a version of the system that shows about 60 different products, and about three different share classes for each of those products, Singh said.

Singh said he thinks Hedgeness has done a good job of bringing together data streams, performance modeling systems, and techniques for quantifying the value of annuity benefits guarantees.

“That’s how we can get an apples-to-apples comparison,” Singh said. “What should it cost to have these benefits?”

— Read Cannex Adds Annuity Benefits Comparison Systemon ThinkAdvisor.

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