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1Aviva’s Progressive Index Annuity Ken MacArthur Assistant Vice President TSA Marketing Highlight the text in text box where you need to update your textChange the text color to black and update textWhen finish, change text back to whitePRO5T044US For Agent Use Only
2Introducing the Aviva Progressive Index Annuity And because of this- and a lot more- I’m pleased to be able to introduce you to the Progressive Index Annuity, from Aviva. It’s a remarkable contract with capabilities that outpace other contracts. That’s why I want to begin this presentation by asking you three questions.
3To begin, three key questions: “Is the indexed annuity you currently sell one that was designed to reflect the real-world performance of the S&P 500® index?”First, “Is the index annuity you currently sell one that was designed to reflect the real-world performance of the S&P 500 index?”Until now, it was a question that really didn’t need to be asked, because until now a contract like Progressive Index Annuity didn’t exist.
4Next question: “Are you familiar with the concept of effective participation?” And a second important question: “Are you familiar with the important concept of Effective Participation?”
5Final question: “Does the contract you sell offer distinct account choices that play to different market conditions?”And the third important question: “Does the contract you sell offer distinct account choices that play to different market conditions?”In a few minutes you’ll understand why these questions are so important, and why obtaining the best result for your clients is to be found where the answers to these questions intersect.
6Answering these questions is Critically Important… The Key to understanding Aviva’s role in the EIA marketplaceThe Key to understanding your own ability to gain Competitive AdvantageThe Key to offering Your Customers the best choice among many indexed annuitiesIt’s important that you understand Aviva’s role in the index annuity marketplace because it is entering the business after other carriers. Therefore, it had to do so in a manner that created competitive advantage for itself and its agents. And it had to do so in a manner that was in keeping with its traditional priority of offering exceptional value to your customers.
7Over the years…I’ve seen that the vast majority of advisors genuinely want to provide their clients the best product availableI’ve seen that most advisors want to benefit from a competitive advantageI’ve seen that most advisors achieve greater success when these desires can be alignedI’m sure you’ve seen a lot over the course of your career. I’ve seen that the vast majority of advisors want the very best for their clients. I’ve also seen that those same advisors want a competitive advantage for themselves whenever it can be achieved. As in the past, Aviva is at its best when it aligns your clients’ interests with your own. That’s just the case here.
8Waiting for an opportunity to do better… It wasn’t enough to simply create a copycat index annuityNor was it keeping in Aviva’s tradition of innovation and choice as we have seen in other product types i.e. Enhanced Guarantee AnnuitiesFor Aviva, therefore, it wasn’t enough to create a copycat indexed annuity. Nor would that have been in the company’s tradition of innovation and choice. One need only to look back at the introduction of Aviva’s Enhanced Guarantee Annuities to understand what I mean.
9Waiting for an opportunity to do better… What we have here is one of those examples of a legitimate and important improvement that occurs at the contract DNA levelA contract design that substantively alters the status quo!So what we have here is one of those rare examples of a fundamental improvement to a contract design- at the “DNA” level.When the status quo is altered in this way it usually signals an outstanding selling opportunity- and competitive advantage- for you.
10Back to our questions…Aviva believes that you are likely not currently selling an indexed annuity that recognizes a critical historical performance characteristic of the S&P 500®That is what we refer to as “Breakthrough Years”Let’s go back to those first three questions. The reason I asked them is because Aviva believes that you may not be currently selling an indexed annuity that recognizes a critical performance characteristic of the S&P 500 index. This is what we refer to as “Breakthrough Years.” I’ll explain more about this in a moment.
11Aviva believes…That to properly serve your clients you must become familiar with the concept of “Effective Participation”This recognizes and quantifies the capabilities of all types of indexed accounts and defines what “participation” really meansAviva also believes that to work with an indexed annuity to properly serve your clients long-term savings needs, you must become familiar with the concept we call “Effective Participation.” As you’ll learn, “Effective Participation” recognizes and quantifies the capabilities of all types of indexed accounts. You could say that it defines what “Participation” really means.
12Effective Participation ! So let’s look at Effective Participation to understand how it may impact the total interest returns indexed annuities create.
13Demonstrating Effective Participation Traditional Cap strategies with a 100% Participation Rate fail to capitalize on S&P 500® breakthrough yearsAnnual S&P 500 PerformanceCAP Return7% Cap Effective Participation-10%0%5%100%10%7%70%15%47%20%35%25%28%30%23%Let me explain this chart because it is very revealing. On the left side you see hypothetical annual performance levels for the S&P On the right side you see the actual Effective Participation rate assuming a stated 100% participation rate and a 7% cap.The first example is a negative 10% return. Obviously, there is no gain so the effective participation rate is 0%.Next a 5% S&P gain equals a 100% Effective Participation rate because the gain does not exceed the annual cap of 7%.But look at a 10% assumed S&P 500 gain and you’ll see that the Effective Participation rate is reduced to 70%. This is because S&P 500 performance exceeded the Cap level.As the assumed S&P gains become more dramatic- 15%, 20%,25% and 30%, you’ll notice that the Effective Participation rate is reducing to as low as 25%. (Pause)I guess this points out that a traditional Cap strategy is Great, when S&P gains are moderate. But when the S&P enjoys stellar performance, traditional Cap strategies fall far short.
14Aviva wanted to do better… In order to combat the limiting effect of Effective Participation, Aviva has devised an innovative interest crediting strategy designed to capitalize on those years when the S&P 500® produces larger gainsRealizing this, Aviva wanted to do more. It wanted to devise a way to combat the limiting effect of Effective Participation. And it did so by devising an innovative interest crediting strategy designed to capitalize on those years when the S&P 500 produces larger gains.
15Because we now have a new way to credit interest when the S&P 500 To understand this new strategy we need to become familiar with a new term, the“Breakthrough Level”Because we now have a new way to credit interest when the S&P 500“Breaks Through”To understand how this new strategy works we have to become familiar with a new term- the “Breakthrough Level.” The reason is that Aviva has now given us a way to create interest gains when the S&P 500 “Breaks Through.”
16Annual Breakthrough Index Account 100% Participation over the Breakthrough Level(12.75% - 10/7/05)PLUS25% Participation up to the Breakthrough LevelThe way Aviva has done that is through the creation of the Annual Breakthrough Index Account. This account gives you a lower participation rate up to a pre-determined level – the “Breakthrough Level” – but 100% participation in any potential gains above that level, without limits.
17How the Breakthrough Account Can Produce Outstanding Gains in Breakthrough Years S&P 500 Performance7% Cap ReturnBreakthrough Account Effective ReturnBreakthrough Effective Participation-10%0%5%1.25%25%10%7%2.50%15%3.75%20%8.75%44%13.75%55%30%18.75%63%This chart illustrates how the Breakthrough Account has the potential to produce outstanding gains when the S&P “breaks through.” It is important to note that the Breakthrough level can fluctuate but yields opportunity in higher markets.Similar to the last chart, we show the same assumed levels of annual S&P 500 performance. On the right you’ll note the effective return that would be produced by the Breakthrough Account.You can see that the return is lower than the return of a cap account until the S&P performance accelerates. For example, a 20% return in the S&P calculates to a 8.75% interest rate for the client. Let me explain how that return is calculated.Let’s assume the Breakthrough Level is 15%. The client would receive 25% of the S&P 500 return up to 15%. That’s 3.75%. Plus, the client receives 100% of the S&P return above 15%. That’s another 5%. 20% minus 15% equals 5%. Add them together we have a client result of 8.75%.Larger potential S&P gains generate a larger level of interest. A 25% gain in the S&P 500 creates a gain of 13.75% for our client. A 30% S&P gain generates an 18.75% gain in the annuity.These examples show dramatically higher interest gains than what an annual Cap strategy would return in these breakthrough years. You’re probably wondering, “How often does such performance occur? We’ll answer that in a moment.Assumes a 25% participation up to a 15% Breakthrough Level, and 100% thereafter.
18Why is the Annual Breakthrough Strategy Important? It can dramatically increase interest growth when the S&P 500® “Breaks Through”An important question is, “How often does the S&P 500® break through?”It’s probably already obvious why this new strategy for indexed annuity gains is so important. Again, the important question is, “How often does the S&P 500 break through?”
19Breakthrough Years – How Often? Even one or two Breakthrough years can carry a product’s effective annual return to greater levels over the product’s lifeThe fact is, since January 1971, the S&P 500 breaks through quite often. More than 27% of the time it has generated a gain that exceeds 20%, with an average annual return of 28.1%.35.5% of the time it has exceeded 16% with an average annual return of 26.1%.45% of the time the S&P 500 has exceed 12%, with an average annual return of 23.5%.51.5% of the time the S&P has exceeded 10% with an average annual return of 22%.And 73% of the time the index exceeded a zero percent return with an average annual return of 12%.Frankly, when I saw these statistics it changed my entire perspective on how the S&P actually performs. And it made me understand that typical index annuities fall short of providing the ideal interest crediting strategy. That’s why I asked you in the beginning if the index annuity you sell now really reflects the manner in which the S&P has performed historically?**Source: Standard & Poor’s market data since January Index represented is the S&P 500 without dividends. Average returns are based upon an annual point-to-point methodology. Past performance is no guarantee of future performance.
20So history shows why annuity contract holders should have a way to capitalize on breakthrough years! But what about years when S&P 500® performance is in the single digits?So I believe we can safely conclude that history validates the need for index annuity owners to have a way to capitalize on breakthrough years. But what about when S&P 500 performance is not at levels we would describe as “breakthrough?”
21Annual Cap Index Account Interest is credited for 100% of those gains up to the indexed interest cap6.5% (10/7/05)Well, that’s why Aviva has also created an exceptional Annual Cap Index Account. The annual cap account is perfect for those years when S&P performance is moderate. The Annual Cap Account has a very competitive 7.5% Cap and it provides 100% of potential S&P 500 index gains up to that level.
22An Aviva Edge! Indexed Accounts That Complement One Another Cap account returns tend to be more stable and yield moderate returns in most years that the S&P gainsBreakthrough account returns can fluctuate but yield opportunity in higher marketsBlending accounts can provide the best of both worldsImportantly, Aviva makes it possible to blend accounts, allowing you to create an allocation between the Annual Cap and Breakthrough accounts that best fits your clients’ needs. In this way your client can benefit from the “best of both worlds.”
23An Aviva Edge! Choose an allocation that best suits your client’s needs As an example you may consider spreading the premium equally among the Breakthrough and Annual Cap strategies. This approach would provide a balanced opportunity to enjoy more stable earnings potential in most years combined with a higher yield opportunity over any future breakthrough years.50%50%BreakthroughAnnual Cap
24An Aviva Edge! Choose an allocation that best suits your client’s needs 33%67%Another approach might be to allocate two-thirds of the premium to the annual Cap Account and one-third to the Breakthrough Account.BreakthroughAnnual Cap
25An Aviva Edge! Choose an allocation that best suits your client’s needs 100%Another approach might be to allocate 100% of the premium to the annual Cap Account. Any other scenario you may think of- may be changed on the contract anniversary. You have ongoing flexibility to design allocation strategies among the index accounts as you see fit.Annual Cap
26Or need systematic distributions? It gets better!What about clients who do not want 100% of their premium in an indexed strategy?Or need systematic distributions?You might be thinking , “This annuity is close to perfect.” What comes next may close the loop.For clients who do not want all of their money in an index account? …Or need systematic distributions?
27An Exceptional Fixed Interest Account Declared and Guaranteed AnnuallyCompounds dailyAdditional premiums go into Fixed Account; can be allocated at anniversaryMinimum rate guarantee of 1.5% to 3.0%; will apply for the life of the contract (2.7% Model Index – 10/7/05 )Systematic withdrawals taken from the Fixed Account first to protect Indexed AccountsNo Market Value AdjustmentsAviva offers a exceptional Fixed Interest Account. Here you can earn very competitive interest in a way that you’ll always know exactly how much your interest gain will be.Competitive interest is declared and guaranteed annually on the contract anniversary. And the minimum interest guarantee will be between 1.5% and 3% for the life of the contract.All withdrawals and systematic deductions are first taken from the Fixed Interest Account so as to protect index gains. Any subsequent premiums are placed into the Fixed Interest Account until contract anniversary. And there is never a market value adjustment.
28An Exceptional Fixed Interest Account 3.15% Guaranteed One Year (10/7/05)I said that the Fixed Interest Account pays a competitive rate of interest, and it does. It’s currently 3.6%, which is guaranteed for the first contract year.
29How do the 3 Account Options Compare? For example, look at page 4 of your Certificate of DisclosureIf we apply the actual S&P 500 values over the last 10 years with a hypothetical 3% fixed, 7% cap, and 15% breakthrough on a $10,000 premium, allocated exclusively in each account for 10 years -How would theses 3 accounts faired over the last 10 years? Refer to your COD. Using actual S&P 500 experience with 3% fixed, 7% cap and 15% breakthrough, $10,000 would have earned over a specific time frame:
30We get: Example A (1/15/95-1/15/05) Fixed = $13,440 Cap = $15,700 Breakthrough = $22,295**0% interest in 3 of 10 yearsExample B (7/15/94-7/15/04)Fixed = $13,440Cap = $17,180Breakthrough = $21,070**Sub-3% interest in 5 of 10 years100% Breakthrough Account allocation is generally not recommended. These examples are for illustration purposes only.
31Salary Reduction works GREAT with Aviva Life Insurance Company Client Statement is Simple to Understand in contrast to other companiesUpon withdrawal/surrender other contracts would need to stagger/delay payment to avoid losing potential S&P gainsFixed Account offers Stable Returns and Ability to Access Money
32Salary Reduction works GREAT with Aviva Life Insurance Company Diversify your Client’s Money with ONE contract through two Indexed Accounts and one Fixed AccountDeclining 10 year surrender chargesOn-going Compensation option – Trail Option case by case300+ year Heritage (Aviva plc)
33Unmatched Flexibility Choice Of Accounts – Allocate among two indexed and a fixed account; diversify according to risk tolerance, savings timeline and overall objectivesTransfers Among Accounts – Transfer values among the three accounts on contract anniversaryFlexible Premium – Add subsequent premium at any time; allocate at anniversary among the three accountsStepping back, think about the level of flexibility this annuity offers.You may allocate among two index accounts and a fixed account. Therefore you can diversify premiums according to risk tolerance, the savings timeline and overall objectives.You may transfer among the three accounts on contract anniversary.And you may add premiums at any time- WITH NO NEW SURRENDER CHARGE. For an annuity this attractive, that’s a long-term advantage that is significant.
34Access to MoneySurrender Charge Free Withdrawals – 10% starting from Day OneFixed Account First – Preserves index growthSystematic Distribution – For as little as $100Nursing Home Waiver – Not available in all states or for TSAPolicy Loans – Available for TSAs onlyLet me mention access to capital because allowing clients to have excellent access to their money has long been a hallmark of Aviva. It’s no different with Progressive Index Annuity.For example, penalty free withdrawals start on the first day of issue.Systematic distributions are available for a low minimum of $100. There is also a nursing home waiver and, for TSA contracts only, loans are available.
35Outstanding Guarantees Guaranteed Surrender Value: 87.5% of premium at 1.5% to 3.0% per yearGuaranteed Minimum Fixed Rate: Set at issue between 1.5% and 3.0% per yearGuaranteed Minimum Indexed Cap: 5.0%Guaranteed Maximum Breakthrough Rate: 50.0%Participation Rates: Set at issue; can’t change over contract lifeOne of the best set of features for the Aviva Progressive Index Annuity is the breadth of underlying guarantees.The client’s minimum surrender value is calculated at 87.5% of their premium growing at an treasury indexed rate. Once set at issue it lasts for the life of the contract. Today’s minimum rates are around 2.65%, meaning the client’s surrender value will break even at around 5 years and will ultimately grow to 114%.The 100% participation up to the cap is guaranteed and the 100% participation over the breakthrough is guaranteed.The only moving parts are the cap level and the breakthrough level. The min cap which can be set at no less than 5% and the maximum breakthrough which can be set no higher than 50%. Any participation rates such as the 100% or 25% are set at issue and cannot change over the life of the contract.
36Payout Options Income for a Fixed Period Life Only Income Life with a Guaranteed PeriodLife with Installment RefundInterest OnlyIncome of a Fixed AmountAvailable with no surrender charges after five years when paid out over at least five years by administrative practiceAs you would expect, a number of payout options are available, including a 5 BY 5 with no surrender charges.
37Competitive Advantage Issues to think about when comparing your current indexed annuity…Is there a distinct choice of accounts to match changing markets?What are the “Effective Participation” possibilities of that product?Can you capitalize on Breakthrough Years?Can you blend accounts to best serve clients’ long-term savings needs?Does the contract have strong liquidity features?In the beginning I talked about how this product would help you gain a very real competitive advantage. To think that through, here are some issues which I believe are important.First, if you are selling index annuities think about your favorite contract and ask yourself is there is a distinct choice of accounts that can match changing markets?Then, ask yourself, “What is the Effective Participation rate it is providing?”“Ask if your clients are capitalizing on “Breakthrough Years”?“Can you blend accounts to best service your clients’ long-term savings needs?”And finally, “Does the contract provide exceptional liquidity?”
38Summary Specifications Issue Ages/Premium0-85 NQ and Q; 0-75 TSA; TSA = $50/mo. Min. Prem.Minimum Premium $10,000; Contracts Issued WeeklyIndexing MethodPoint to Point Annual ResetMin Guar Surr Value87.5% of Premium Growing at Min Rate 1.5%, Max Rate 3.0%Term/Charges10-year Term – Surrender Charges %TransfersAmong Accounts on AnniversaryDeath BenefitGreater of Accumulation Value or Min Cash Surrender ValueWithdrawals10% Surrender Charge Free Withdrawal Available Year 1; No MVAAnnuitizationLater of Age 85 or 15 Years after Contract IssuePeriodic Payments Available after 5th Year for 5-year or by Admin PracticeOtherNursing Home Waiver Available (Not in all States; Not TSA)Loans Available for TSA onlyAre you currently selling an index annuity that has no surrender charge at death? This is an increasingly more important issue for compliance concerns.
39“Why would you sell an indexed annuity that doesn’t provide all of this when you can sell one that does?”In closing just one more question:“Why would you sell an indexed annuity that doesn’t provide everything we’ve talked about when you can sell one that does?”Honestly and objectively, I believe that no company has created an indexed annuity that is superior to the Aviva Progressive Index Annuity. Hopefully, this presentation has brought you to the same conclusion.