Close Close
ThinkAdvisor

Life Health > Annuities > Variable Annuities

AIG Unit Adds Indexed Variable Annuity With Stretchy Loss Protection

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • The prospectus shows base contract expenses of 1.25%.
  • The fee for a 10% 10-year account value buffer is 0.4%
  • The underlying fund expenses range from 0.48% to 1.24% of the underlying fund assets.

AIG Life & Retirement has introduced an index-linked variable annuity with a flexible mechanism for protecting account value.

AIG says the design of the Advanced Outcomes Annuity contract can maximize a holder’s potential account value gains, by letting the holder capture gains and reset protection against losses at any time.

An annuity holder can use the contract’s Capture-Reset-Reinvest feature “at any time and for any reason,” AIG says. “As a result, financial professionals and their clients can capture investment gains whenever they choose and then reset the downside protection while also reinvesting in new strategies.”

AIG Life & Retirement

AIG Life & Retirement is part of New York-based American International Group. AIG has said that it would like to turn AIG Life & Retirement into a separate company.

AIG is issuing the new annuity through American General Life Insurance, a subsidiary based in Houston.

Life insurers and regulators use a variety of terms to describe variable annuities that tie crediting rates to the performance of one or more investment indexes. AIG is calling its new contract a “variable annuity featuring structured outcome investments.”

The Milliman Connection

AIG says it based the investment-loss-reduction mechanism in the new contract on strategies developed by Milliman Financial Risk Management.

One component of that strategy is that the contract frees about two-thirds of the available investment strategies from any performance cap, or limit on the amount of investment index gains that a holder can collect, AIG says.

Choices

The contract offers buyers three different ways to connect crediting rates to investment index changes and three different ways to reduce the effect of investment index drops.

The downside protection options can protect a holder against a predefined percentage of a market decline; set a floor, or maximum market loss figure; or create a buffer, by providing a predefined level of protection against market losses.

A purchaser can use strategies with a fund investment term of six months, as well strategies with one-year or six-year terms.

The Filings

In an actuarial demonstration document filed with the Interstate Insurance Product Regulation Commission, American General actuaries describe the contract as a “flexible-premium deferred annuity that provides variable benefits.”

“The investments available on this contract are … subaccounts that are constructed using a basket of fixed-income and equity derivatives to deliver a targeted outcome for clients that invest in the subaccount and hold it to the end of the term,” according to the American General actuaries. “These portfolios are similar to other variable annuity portfolios in that they have daily unit prices and are registered securities with the SEC and will have fund prospectuses available.”

The contract also offers holders a money market portfolio.

The potential range of issue age is from age 18 to age 85.

The contract has a six-year surrender period.

A registration statement filed in December 2021 with the SEC states that the annual fee for the base contract is 1.25% of the average daily ending net asset value allocated to the variable investment portfolios.

The fund fees and expenses for the underlying investment options range from 0.48% to 1.24% of the underlying fund net assets.

The fee for a 10% account value buffer is 0.4% of underlying fund assets for a 10-year buffer and 0.75% for a 20-year buffer.

A table illustrating what charges might be like for a typical investor who invests $100,000 shows annual costs could range from $1,552, for an annuity holder who buys no optional benefits and has no withdrawal charges, to $2,800, for a holder who chooses the richest package of optional benefits but takes no withdrawals.

,,

Pictured: AIG’s headquarters in New York. (Photo: Ryland West/ALM)