CUNA Mutual Group of Madison, Wisconsin is among five US insurance companies that over the past four years have crafted and now sell a structured annuity investment product featuring structured product-like features.

Like the bigger insurance companies’ structured annuities, Cuna Mutual’s Members Zone Annuity is a variable indexed annuity linked to the S&P500. It offers a choice of several index periods (five, seven and ten years) and also offers investors a choice of downside buffers (referred to as rate floors) ranging from 0% to -10%, with appropriate upside performance caps that are correlated and are adjusted annually.

The annuity is sold through CUNA Mutual’s parent CMFG Life Insurance Company.

Simplicity
By comparison to others, CUNA Mutual’s Members Zone Annuity offers a simpler product model by only pegging performance to a single equity index and not offering downside buffers greater than -10%. That simplicity is exactly what CUNA Mutual wanted to offer its predominance of credit union customers who can buy this indexed VA through sales advisers working from credit union members’ offices as part of CUNA Mutual brokerage services, and through an increasing number of independent broker-dealers.

The CUNA Mutual annuity was introduced 11 months ago, in August 2013 and has thus far amassed just under $200m in assets. “It has exceeded our expectations,” Bob Buckingham, vice-president of annuities at CUNA Mutual, told SRP, noting that the structured annuity is not distributed through all sales channels. Concurrently, and within the last year, CUNA has been focusing on increasing distribution through the external independent broker-dealer channel.

Development
According to Buckingham, the Members Zone Annuity was about nine months in development prior to launch.

CUNA Mutual had recognised that there was a gap in the marketplace for retirement accumulation investment vehicles with an adjustable downside floor accompanied by higher upside potential.

“What we learned is that folks are looking at investment vehicles that provide against loss and have upside potential,” Buckingham said. Many investors simply don’t want the exposure to all of the downside risk that we experienced in 2008. “This annuity allows customers to dial in the amount of downside risk from zero to minus 10%,” he said. Interestingly, the average downside buffer chosen by investors has been -5%.

CUNA Mutual currently offers several other annuity products that typically appeal to more mature investors, Buckingham said. The structured annuity is appealling to a somewhat younger demographic – including clients in their 20s through to 40s – because it has more risk. But CUNA Mutual found that the average age of investors has been just below 60 years of age.

“We are not focused on the high net worth investor,” he added. Rather, CUNA Mutual focuses on typical customers who are already familiar with the S&P500 Index which they understand generally represents the US stockmarket.

“We’ve worked really hard to keep our product simple and understandable; that’s our market,” Buckingham added. “This product we will probably not alter in any significant way.”