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Athene Performance Elite 7+, 10+, & 15+

Screen Shot 2016-08-21 at 9.19.34 PMWith the introduction of the Performance Elite series in 2014, Athene has created a product that ranks in the top five of all index annuity products purchased in 2016. With the primary goal to create a strong accumulation product, they have succeeded in providing one of the best performing index annuities in the industry. With numerous index choices, including solid uncapped Volatility Indexes, Athene boasts some of the highest caps and lowest margins available among index annuities available in today’s marketplace. Let’s take an inside look at the Performance Elite (PE) Annuity to see why this annuity is among today’s best.

(December 2017 Review)

Type: Fixed Index

Best Use: Accumulation, Income

Company: Athene Annuity & Life Insurance Company

Rating: AM Best A- Excellent, S&P A-

Surrender Period: 7/10/15 years

Bonus: 0 or 5% on 7 year/ 4 or 9% on 10 year/ 7 or 12% on 15 year (Some state variations will be lower)

Premiums: Single Premium, $25,000 Minimum

Issue Ages: 7 Year 0-83, 10 Year 0-78, 15 Year 0-73 (This varies depending on state approvals and state variations)

Liquidity: 7 Year 10% of Accumulation Value each year, 10-15 Year 5% each year after year 1, If Liquidity Rider is selected then 10% is available each year, if 10% is not taken, then 20% becomes available following year. Also with Liquidity Rider, Return of Premium is available after 4th year.

Also allows 100% of funds available without penalty after 1st year for Qualified Care Facility after 60 days, or for Terminal Illness of 12 months or less

Death Benefit: Full Account Value (Including Bonus)

 

The New Kid on the Block

Athene Holding company was formed in 2008, by the large private equity firm, Apollo Group. In 2011 Athene purchased Liberty Life Insurance Company and Investors Insurance Corp, in 2012, purchased Presidential Life, and the biggest move of all, in 2013, purchased European based Aviva Life and Annuity for 1.55 billion dollars and took over Aviva’s already large position in the annuity marketplace. With over 60 billion in total assets, and by taking over Aviva’s operations in Des Moines, IA, they are now one of the largest fixed annuity companies. Since then, Athene has introduced very strong products on their quest to being one of the top annuity carriers and currently they are in the top five overall for index annuity sales in 2016.

Three Surrender Periods Choices

The Performance Elite annuity has three surrender period options, 7, 10 or 15 years. The 7 year surrender period does not have a bonus on the base product, with a 10% free withdrawal available in all years. The 10 year surrender, or PE 10, base annuity offers a 4% first year bonus with a 5% free withdrawal of accumulation value year, after the 1st yearThe 15 year surrender, or PE 15, offers a 7% bonus with the base annuity and the same 5% free withdrawals.

Liquidity Rider

Athene offers a Liquidity Rider on all of the PE annuities for a fee of .95% of the account value. This rider adds an additional 5% bonus to the annuity, On the PE 10 and 15 this also increases the free withdrawal to 10%, and makes free withdrawals available during the first year, which is not common, most annuities only allow a free withdrawal after the first year. The rider also adds an additional liquidity feature; if 10% isn’t withdrawn from the annuity, then the following year the penalty free withdrawal increases to 20%. One other unique feature, after year four, you can request back your original deposit, minus any withdrawals, without any penalty.  This can be nice in case there are unexpected emergencies, or you just would like to do something else with the funds.

Crediting Options

Now that we see how the annuity is designed, let’s take a look at what Athene offers in the PE 7, 10 & 15, with regard to indexes, cap rates, and margins. One thing you will notice is the PE 7 & PE 15 offer slightly higher crediting potential in the forms of higher caps and lower margins then the PE 10.  The higher bonus on the 10 over the 7 would explain the difference in the rates.

Here are the following options available as of the time of this writing:

PE 7

Bi-Annual Point to Point, BNP MAD 5 Index, 115% of Gains, No Cap, No Margin

Annual Point to Point, BNP MAD 5 Index, 80% of Gains, No Cap, No Margin

Bi-Annual Point to Point, Morningstar Index, No Cap, 85% of Gains

Annual Point to Point, Morningstar Index, No Cap, 70% of Gains

Bi-Annual Point to Point, Janus SG Index, No Cap, 90% of Gains

Annual Point to Point, Janus SG Index, No Cap, 55% of Gains

Annual Point to Point, S&P Daily Risk Control 2 8, No cap, 50% of Gains

Bi-Annual Point to Point, S&P Daily Risk Control  2 8, No Cap, 100% of Gains, 2.75% Annual Margin

Annual Point to Point, S&P 500, 4.5% Cap

Monthly Point to Point, S&P 500, 1.75% Cap

Fixed Rate, 1.60%

PE 10

Bi-Annual Point to Point, BNP MAD 5 Index, 100% of Gains, No Cap, No Margin

Annual Point to Point, BNP MAD 5 Index, 70% of Gains, No Cap, No Margin

Bi-Annual Point to Point, Morningstar Index, No Cap, 85% of Gains

Annual Point to Point, Morningstar Index, No Cap, 60% of Gains

Bi-Annual Point to Point, Janus SG Index, No Cap, 80% of Gains

Annual Point to Point, Janus SG Index, No Cap, 50% of Gains

Annual Point to Point, S&P Daily Risk Control 2 8, No cap, 45% of Gains

Bi-Annual Point to Point, S&P Daily Risk Control  2 8, No Cap, 100% of Gains, 3.5% Annual Margin

Annual Point to Point, S&P 500, 4% Cap

Monthly Point to Point, S&P 500, 1.65% Cap

Fixed Rate, 1.40%

PE 15

Bi-Annual Point to Point, BNP MAD 5 Index, 115% of Gains, No Cap, No Margin

Annual Point to Point, BNP MAD 5 Index, 80% of Gains, No Cap, No Margin

Bi-Annual Point to Point, Morningstar Index, No Cap, 85% of Gains

Annual Point to Point, Morningstar Index, No Cap, 70% of Gains

Bi-Annual Point to Point, Janus SG Index, No Cap, 90% of Gains

Annual Point to Point, Janus SG Index, No Cap, 55% of Gains

Annual Point to Point, S&P Daily Risk Control 2 8, No cap, 50% of Gains

Bi-Annual Point to Point, S&P Daily Risk Control  2 8, No Cap, 100% of Gains, 2.75% Annual Margin

Annual Point to Point, S&P 500, 4.5% Cap

Monthly Point to Point, S&P 500, 1.75% Cap

Fixed Rate, 1.65%

Athene has been on the cutting edge with the recent introduction of the uncapped Low Volatility Indexes within the index annuity industry today. Also Athene’s current caps and margins are some of the best among index annuities available today.

Returns

Let’s now take a look at the performance for each of the indexes over the last 20-year window. When it comes to the majority of the uncapped Volatility Indexes being introduced in the index annuity marketplace, the historical returns are based on back tested returns. Most of the Volatility Indexes are new in design, so they don’t have a lot of history.

Back Testing Indexes

The majority of Volatility Indexes are what we call rules-based indexes that have set parameters that will determine if the allocation is in cash, or tracking a stock, bond or commodity index. Virtually every form of historical market data is available today with technology, so many of these new indexes can reconstruct historical market pricing and volatility. As long as it is a rules-based or mechanical system designed within the strategy, then typically the only major difference between actual returns and back tested returns, are back tested returns are based on the daily closing numbers. Live indexes would be making changes during the trading day, so a live model could be slightly different than a back tested model. For the most part, with a rules based model, using back testing return history should reflect pretty close numbers to what would have been the case if the model was live.  

Now for non-rules based back testing, that is based on any type of decision making process influenced by market conditions, back testing has little real value, since there is no way to know how a manager would have reacted at that time of volatile market conditions.

Now Let’s See How This Annuity Performs

According to Athene’s software, the following is the return for each of the indexes available in the PE 10 and PE15, over the last 20 years, through 2016, reflecting the highest performing and lowest performing 10 year return period.

PE 7

2 Yr P2P, BNP MAD 5 Index, 115% of Gains, No Cap, No Margin,                   7.84%           5.62%

1 Yr P2P, BNP MAD 5 Index, 80% of Gains, No Cap, No Margin,                     5.68%           4.05%

2 Yr P2P, Morningstar Index, No Cap, 85% of Gains                                         3.69%           2.87%

1 Yr P2P, Morningstar Index, No Cap, 70% of Gains                                         3.38%           2.78%

2 Yr P2P, Janus SG Index, 90% of Gains, No Cap, No Margin,                          8.40%           8.27%

1 Yr P2P, Janus SG Index, 55% of Gains, No Cap, No Margin,                          6.75%           5.50%

2 Yr P2P, S&P Daily Risk Control 8, No Cap, 2.75% Annual Margin                 6.11%           4.81%

1 Yr P2P, S&P Daily Risk Control 8, No cap, 50% of Gains                                4.52%           3.85%

AP2P, S&P 500, 4.50% Cap                                                                                  3.07%            2.22%

MP2P, S&P 500, 1.75% Cap                                                                                 2.73%            1.93%

 

PE 10

2 Yr P2P, BNP MAD 5 Index, 100% of Gains, No Cap, No Margin,                   6.87%           4.92%

1 Yr P2P, BNP MAD 5 Index, 70% of Gains, No Cap, No Margin,                     4.98%           3.55%

2 Yr P2P, Morningstar Index, No Cap, 75% of Gains                                         3.27%           2.54%

1 Yr P2P, Morningstar Index, No Cap, 60% of Gains                                         2.90%           2.38%

2 Yr P2P, Janus SG Index, 80% of Gains, No Cap, No Margin,                          7.55%           7.43%

1 Yr P2P, Janus SG Index, 50% of Gains, No Cap, No Margin,                          6.15%           5.01%

2 Yr P2P, S&P Daily Risk Control 8, No Cap, 3.50% Annual Margin                 5.40%           4.40%

1 Yr P2P, S&P Daily Risk Control 8, No cap, 45% of Gains                                4.07%           3.47%

AP2P, S&P 500, 4.00% Cap                                                                                  2.77%           1.98%

MP2P, S&P 500, 1.65% Cap                                                                                 2.51%           1.93%

 

PE 15

2 Yr P2P, BNP MAD 5 Index, 115% of Gains, No Cap, No Margin,                   7.84%           5.62%

1 Yr P2P, BNP MAD 5 Index, 80% of Gains, No Cap, No Margin,                     5.68%           4.05%

2 Yr P2P, Morningstar Index, No Cap, 85% of Gains                                         3.69%           2.87%

1 Yr P2P, Morningstar Index, No Cap, 70% of Gains                                         3.38%           2.78%

2 Yr P2P, Janus SG Index, 90% of Gains, No Cap, No Margin,                          8.40%           8.27%

1 Yr P2P, Janus SG Index, 55% of Gains, No Cap, No Margin,                          6.75%           5.50%

2 Yr P2P, S&P Daily Risk Control 8, No Cap, 2.75% Annual Margin                 6.11%            4.81%

1 Yr P2P, S&P Daily Risk Control 8, No cap, 50% of Gains                                4.52%           3.85%

AP2P, S&P 500, 4.50% Cap                                                                                  3.07%            2.22%

MP2P, S&P 500, 1.75% Cap                                                                                 2.73%            1.93%

PE 7 and 15 Returns

First let’s analyze the PE 7 and PE15 returns since they have the same rates. When looking for the highest index returns, you can see the 2 year Janus SG Index, returned an astonishing 8.40% over the highest 10 year period, and 8.27% over the lowest 10 year period. The 2 year BNP MAD 5 Index returned 7.84% for the highest 10 year, and 5.62% the lowest. The 2 year S&P 500 Daily Risk Control would have returned 6.11% for the highest and 4.81% for the lowest 10 years.  Certainly some amazing and some of the highest returns for any index annuity that would provide excellent accumulation.  If you factor in the bonus on the PE15 it is has the potential to be  the highest returning index annuity in the industry depending upon market performance and future renewal rates from Athene.

PE 10 Returns

The PE 10 returns were slightly lower where the 2 year Janus SG Index, returned 7.55% over the highest 10 year period, and 7.43% over the lowest 10 year period. The 2 year BNP MAD 5 Index, 6.87% for the highest 10 years, and 4.92% for the lowest. The 2 year S&P 500 Daily Risk Control would have returned 5.40% and 4.40%.  Certainly also very solid returns that would provide excellent accumulation as well.

So for an accumulation annuity, the PE series annuities are certainly some of the leading products in the industry. To achieve the best returns you would need to use the uncapped Volatility Indexes with the 2 year lock in options.

How Can They Do This?

How can these returns look so much better than what we see within typical index annuity crediting methods, and why do they offer the 2 year lock in periods rather than the 1 year that is more commonly offered with most index annuities?  Two reasons, one the power of new uncapped Volatility Indexes, and two, longer duration lock in periods.

It all has to do with the pricing of call options. By managing volatility, call options are less expensive, therefore more of the index can be picked up, and secondly, longer duration call options are less expensive and again more of the index can be captured.

Choose the Rider?

So should you pay the additional .95% and take the rider? It all depends upon your needs. The additional initial bonus that will compound over time, will help offset some of the cost, but if you never took any withdrawals from the annuity, you would have more accumulation without the rider.

Income

Here’s an interesting strategy: Use this annuity for income, instead of using a product that has some form of a guaranteed income benefit. If the annuity could perform near it’s historical return history, one could simply take free withdrawals that are the same or higher than a Guaranteed Income Rider would provide, and the account value would support itself well past life expectancy. In fact we have done a lot of analysis comparing this strategy to using an income rider, and in a lot of cases this can be a better option.

Two Areas Where this Income Option Is Superior

In our analysis there are two specific situations where this income option makes sense, instead of using Guaranteed Income Riders, which can be expensive over time with rider fees.

  1. Younger retirees in their 60’s, who look to take income immediately after investing funds. The problem with most income riders, is the payout rates tend to be pretty low at these ages, especially for a joint payout. Taking withdrawals from a good accumulation annuity can often lend to higher income amounts, and there is a very interesting strategy that can be used to still guaranteed income as retirees achieve older ages. We call this strategy Income Under Management, and it should definitely be considered before purchasing an income rider. Very few annuity professionals use this strategy, but it can be amazing how much better it can perform.
  1. Older aged retirees in their mid or later 70’s needing income. In a lot of these scenarios, we find that simple life expectancy doesn’t warrant using an income rider, as in many cases the clients won’t outlive the point when their accounts are exhausted and the guaranteed income element kicks in from the company. Again using a good accumulation annuity will in most cases provide the same or higher income amounts and will also in most cases also provide a higher account value to their heirs.

So for Income, both the PE 10 and PE 15 have the potential to provide excellent income withdrawal strategies.

A Final Consideration

Something that we have learned simply from experience in dealing with various annuity insurance carriers over the last 15 years, is how they perform at renewal. What do we mean by this? One thing that all index annuity carriers have, is the opportunity to change the caps and spreads with respect to their crediting rates at the time of renewal of the crediting period. There are typically three reasons cap rates will change that we have experienced with carriers.

  1. Market conditions become more volatile, so at the time of renewal, option prices are higher so the companies have to pass on lower caps, higher margins, or lower participation rates, depending upon the crediting method being used.
  1. Higher paying bonds within an insurance companies overall portfolio expire and the carriers have to purchase lower yielding bonds to replace them. This can result in lower dollar amounts to work with to purchase call options to support the index annuity. This isn’t as common, as most carriers will purchase bonds of similar duration as the surrender period of the annuity.
  1. Insurance carriers will increase their profit margin from the bonds that support the annuities, and therefore reduce caps and participation rates and increase margins going forward. Seasoned annuity professionals who have their clients best interest, will identify those carriers and be less inclined to recommend them to prospects and new clients.

With respect to Athene, so far we have witnessed very consistent renewal rates over the last few years since their annuities have been available. Hopefully they will continue this pattern and therefore continue to stand out as a top tier company, although since they are a new company they haven’t had as long a track record as other carriers.

Summary

The Performance Elite Series from Athene Insurance Company really stands out of the crowd within the index annuity marketplace. With their excellent opportunities for growth potential the PE series provide solid accumulation and income opportunities. With their optional liquidity features, they also provide additional flexibility for taking funds out.  As always, get all the information before making a decision to purchase an annuity, and take the time to shop the market to make sure you are getting the best opportunity.

Do you have annuity that you would like us to review? Send us your information and we would be glad to get under the hood and fully disclose the details for you and also see how it stacks up to the competition, as well as other possible strategies that you may not have seen before.

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