How Do Carriers Price Indexed Annuities?
Do you know how an insurance company that issues annuities prices them? If not, don’t feel bad. Even some of the advisors who sell annuities don’t know exactly how the carriers make money.
The biggest misconception is that many people believe that the insurance carrier invests the assets that they receive directly into the indexes that the Fixed Indexed Annuity (FIA) product offers, and then the carrier keeps the spread.
In reality, the carrier usually never invests directly into the actual index. Instead, they are buying high quality (and some lower quality) bonds, in conjunction with certain derivatives to help them hedge their positions.
Make sure to watch this entire video as it is the best on the internet at explaining option pricing for insurance carriers. This video explains in broad terms exactly what a Stock Option is, and how an insurance company prices them within their fixed indexed annuities.
To learn more from this annuity professional, click here (Rob Brinkman).
About the Author:
Rob Brinkman began his investment career in 1987, one month after the infamous October stock market crash. “In the wake of that kind of financial devastation, one learns the importance of a conservative approach to money management”, Rob was quoted in the local Texas newspaper that next week.
Over the past 26 years Rob has become one of the industry’s most respected advocates for conservative, safe investing. As an executive for one of the country’s largest investment/insurance firms, Rob designed and implemented annuity platforms for clients such as Merrill Lynch, Raymond James and UBS. In his private practice, Rob works with individuals who are in or nearing retirement, assisting them in asset preservation and income generation. His ‘white board’ educational videos have become the internet standard for both basic understanding of investment fundamentals, as well as advanced investment strategies.
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