Security Benefit Life, owned by Guggenheim Partners, is on the lips of many wholesalers and advisors at the moment. One of the biggest complaints about indexed annuities is that they are too complicated for investors and many times advisors to understand. We have a few questions about this innovative product. What is the TVI? How does it work? What is the volatility overlay algorithm? When does the index operator go short or long in a component? How does the 1.25% annual yield spread work? Is it even possible to track the gains over the 5 year period? I will do my best to answer these questions and to give us all some general knowledge about this new product. A lot of the information below comes from the research of Jack Marion and Index Compendium.
What is the TVI? The TVI is the Trader Vic Index which is named after Victor Sperandeo, a wall street speculator. 50% of the portfolio is in US Treasury rates and Foreign currencies and the other 50% is commodities, with energy being over 20% of the total. The energy sector is never shorted, but the other sectors will change based on long and shorts on the performance of its exponential moving average.
So how does this crediting method work? Because it is cheaper for insurance companies to buy a 5 year option vs 5 1 year options, the carrier is able to offer potentially more upside potential. There is a 100% participation rate in the TVI, no cap, but a 1.25% annual yield spread. Also the volatility overly is an additional spread that is being added to the product. Although we can track the TVI at http://www.bloomberg.com/quote/ALTVI:IND/chart, we will really never know what our return is going to be until the end of the 5th year into the contract.
Whenever an innovative crediting method comes out, it’s always important to look at past performance, but I think we all know that past performance is NOT a predictor of future performance. That being said the ALTVI is down almost 18% over the last 12 months and over 15% over the last 3 years. This is not the exact performance inside of the Security Benefit Life TVA annuity because of the volatility overlay algorithm as well as the short and long positions which are unknown, but it does tell us how the underlying index that product is based on is performing.
Disclaimer: Any and all material on this blog is for informational and educational purposes only, and is not financial advice by a certified financial advisor or financial professional. Retirement Think Tank is not a licensed insurance entity, it does not receive any commissions or monetary gains from the sale of annuities, and it does not give financial advice, tax advice, or investment advice.