Don’t Let YOUR App Get Hung Up! — Learn more

Dropping Annuity Rates During the Past 12-14 Months — Learn more

Don’t Let YOUR App Get Hung Up!

Tips for Getting Through Suitability

You want a smooth process for getting policies issued and commissions paid, and so do we. While suitability requirements aren’t going away, we do have some tips to help you navigate the form. If you follow these tips, your apps are more likely to move quickly and smoothly through the review process – and quicker processing and approval means you can get your business issued and your commissions paid that much sooner.

Tip #1 Complete the ENTIRE suitability form and any appropriate
state forms

Missing or incomplete information will prevent your application from even getting started. The top three questions that cause problems: Questions 5, 7 and 9. (More about these questions in Tip #2.) Certain states, such as Florida, require submission of additional state suitability forms. If you are selling an annuity in Florida, or any other state with additional requirements, you must also complete those state suitability forms. Be sure both you and the applicant sign all forms in the appropriate places.

Tip #2 Section III is Critical – Additional Tips for Questions 5, 7 and 9

Question 5 requests information about the annuity being purchased. You should include the name of the product, the total premium and the length of the withdrawal charge (surrender charge) period. Providing this information will help move your application more quickly through the process. If you have questions or need more information about the LSW or National Life annuity you are recommending, call the Annuity Sales Desk at 800-906-3310 before completing the application.

Question 7 requests information about the policy owner’s anticipated need to access money from the annuity. Understanding the policy owner’s expectations on when and how much money will be needed is an important part of determining if the proposed transaction is suitable. Ensure you check ‘yes’ or ‘no’ for the three parts of this question. If all three sub-questions are not answered, the application cannot be processed and it will be held pending receipt of additional information from you.

Special Note on Q7: If the answer on Question 7a, 7b or 7c is ‘yes’ because the applicant is purchasing the Guaranteed Lifetime Income Rider (GLIR) with the policy, please note that on the suitability form next to Q7. That will be taken into consideration during review.

Question 9 requests information about how the applicant will fund the annuity being purchased. All applicable sources must be checked and, if the funding is a result of a replacement, it is critical that you include all of the requested information about the product being replaced. Company name, product name, dollar amount, product type and withdrawal penalty information should be written or typed in the space provided. You must also indicate whether or not the product being replaced includes a Lifetime Withdrawal Benefit by checking either the ‘yes’ or ‘no’ box. If all of this information is not included, the application cannot be processed and it will be held pending receipt of additional information from you.

Tip #3 Always send the suitability form directly to LSW

When you order transfer forms from LSW, you will also receive the suitability form. In cases where the transfer form needs to be sent to a TPA for approval (i.e. for certain 403(b) transactions), DO NOT send the suitability form to the TPA – this will cause a delay. On transactions that require the suitability form for processing, the suitability form should be sent directly to LSW with the application. The TPA should receive only the transfer form (in cases where this is applicable).

If you need additional information or have questions, please call the Annuity Sales Desk at 800-906-3310. We will be happy to assist you.

Back to top

Dropping Annuity Rates During the Past 12-14 Months

Annuity rates for both our traditional fixed and fixed indexed annuities have been dropping over the past 12-14 months. Rate reductions have occurred despite the fact that 10-year Treasury rate has been increasing during the period. The following is an explanation of why the slope of new money credited interest rates and Treasury rates (see chart below) have differed during this period.

The yield insurance companies receive on the investments they make is a result of many things: (1) class of investment choices; (2) the credit quality of purchases; (3) the risk premium (rate over Treasury’s) paid for investments; and (4) underlying Treasury rates. During the past 14 months, the fundamentals for each of the above have been changing so as to result in lower overall new money investment yields. Let’s examine each of these:

1. Range of Investment Choices – the range of investment choices has declined as the CMBS (mortgage backed bond) and the commercial mortgage market were eliminated or reduced as potential choices. Fewer choices caused insurers to buy more corporate’s which has further fueled the order in balance for corporate bonds. Recently, the commercial mortgage market has become viable as an asset purchase category.
2. Credit Quality – during this period of financial instability, companies, such as LSW and National Life, have been moved to concentrate their investment to higher quality investments of at least “A” quality. Increasing the credit quality of purchases always reduces risk premium and returns compared to other investment choices.
3. Risk Premium Spreads – during the past 12-14 months, the risk premium spreads over Treasury for similar quality investments (for instance “A” rated 10-year corporate bond) dropped from approximately 450 basis points to 110 basis points. This drop in the spread over Treasuries has occurred as the fear for the financial system, which existed in early 2009, dissipated to a great degree. Further, this reduction in risk premium is further fueled by an order in balance between demand and supply. Excess demand for corporate's drives down spreads.
4. Underlying Treasury Rates – while Treasury rates have moved up significantly during this period, they still remain low by historical standards.

The net effect of these factors is shown in the above graph. While Treasury rates have been slightly increasing over the period, the returns on new money investments have dropped significantly. Reduced investment earnings on new money investments results in lower credited interest rates.

On the indexed side, lower investment earnings mean a lower option budget (i.e. a lower amount available to spend on options means lower participation rates/caps). For the averaging methodology, volatility costs also come into play. Volatility costs have greatly increased over the past year as noted by the reduction in the percentage of participation available on averaging products from 100 or 100+ in early 2009 to 40% today.

All of the above factors are fluid and do constantly change. As they change, both up and down, we will respond accordingly. Our goal remains to provide competitive products with competitive interest rates and to do so in a way that we can always deliver on the promises we make.

Back to top