While the S&P 500 remains the dominant FIA and RILA index, in recent years indexes have proliferated.

Insurance companies want new indexes for differentiation and for less volatile exposure. Index manufacturers have responded with a wide array of advancements, many of them for volatility control. These indexes show backtested results and leave insurance companies wondering about the underlying resiliency and stability.

Select{e}Annuity’s capabilities allow insurance companies to take an index and disassemble it into its components, test it against different market conditions, optimize the components to preferred objectives, and compare it to other indexes. This levels the analytical playing field and promotes more tuned indexes for an insurance company’s FIA/RILA design, investment, and exposure targets.

The following workflow allows an insurance company to validate or counter an index publisher’s assertions.

Click each green button for a live Select{e}Annuity page

(Certain features and navigations are restricted for non-subscribers.)

S&P’s MARC 5% fact sheet describes the index’s structure. Its underlying constituents are: 1) S&P 500 Excess Return Index, 2) S&P 10-Year U.S. Treasury Note Futures  Excess Return Index, and 3) S&P GSCI Gold Excess Return Index.  These are uncommon indexes.  Select{e}Annuity analyzes this index compared to the S&P 500, broad-market bonds, and balanced (i.e., 50% S&P500 | 50% bonds).

Instead, of the S&P MARC 5%’s uncommon indexes, consider indexes with similar market exposures but that are much more familiar – S&P 500 (VOO); bonds (AGG); commodities (COMT); this set has wide acceptance, long track records, and high liquidity.  Select{e}Annuity enables the creation or replication of any index, and this forces the index publisher to justify why it selected the constituents and what its mix seeks to achieve. An insurance company is able to judge the match of an index to its investment and market objectives.

To see how these market exposures compare, a “Holdings Analysis” evaluates relative risk and return contribution as well as a number of risk and return statistics. This shows that since 2014,  commodities have far more contributed risk versus return. A key question to answer: What is the true benefit that commodities provide for a risk-controlled index?

These constituents can be saved into a free-form custom grouping called a  “Ticker Tracker” (T2). This allows ready access to any number of products, indexes, or a combination to be used for further comparative analysis.

FIA indexes such as the MARC 5% blend market exposures. There is a methodology for structuring the allocation among the constituents to target a risk/return objective.  But how does this embedded allocation compare to other optimizations such as lowest volatility (“Conservative”), balanced, and return focused (“Aggressive”)?

For an insurance company seeking a low volatility index option, Select{e}Annuity’s side-by-side comparison reveals that the S&P MARC 5% generally achieves its target. However, by adjusting the analysis period (at the top of the page in the middle) can alter the risk/return metrics dramatically. Next, by selecting a market segment period (the left section at the top of the page) to see how the index performed during various historical market, economic, and interest rate periods, tests the MARC 5%’s true resiliency and stability of its backtesting and ongoing rebalancing methodology.