Annuities

Bates Group’s experts have provided valuable insights on all aspects of annuities on both a consulting and testimony basis. 

Our experienced team provides services, guidance and/or testimony on the inclusion of annuity products in investor portfolios, including choosing the right annuity for a client's needs, and are very familiar with all the selections that need to be made when purchasing fixed, variable and equity indexed annuities. 

In addition to calculating the annuity profit/(loss) and other performance metrics, Bates has deep experience in analyzing, and creating exhibits addressing living and death benefit provisions in annuity contracts, including: Guaranteed Minimum Accumulation Benefit (GMAB), Guaranteed Minimum Withdrawal Benefit (GMWB), Guaranteed Minimum Income Benefit (GMIB) and enhanced death benefits. Displaying the intrinsic value of these benefits at select points in time in comparison to ending/accumulated value has been very effective in cases where contracts were surrendered during the recent financial crisis, and the value of these additional features need to be considered in evaluating the surrender or exchange.

For some contracts that have been surrendered or exchanged at a low point in the market, Bates has prepared “what if” scenarios projecting the hypothetical living/death/portfolio values from a historical date to a future date to capture the appreciation that would have occurred if the contracts had been maintained.

Bates experts have provided opinions on the suitability of annuity switches. These cases include retail litigation as well as regulatory matters and range from an individual 1035 exchange to regulatory matters involving hundreds of exchanges.

If necessary to specific case issues, we also have the capability to incorporate actual or hypothetical withdrawals into our analyses and to identify the tax implications involved with different hypothetical scenarios. In supporting our clients we have also pioneered a present value analysis of living benefits that incorporates life expectancy considerations. 

Our industry experts are frequently retained by counsel in state court to testify in matters concerning the suitability of annuity products in investors’ portfolios:

Living Benefits

  • We have prepared, and testified to, numerous schedules including Guaranteed Minimum Accumulation Benefit (GMAB), Guaranteed Minimum Withdrawal Benefit (GMWB), and Guaranteed Minimum Income Benefit (GMIB).  Displaying the intrinsic value of these benefits at select points in time in comparison to ending/accumulated values was very effective in cases where contracts were surrendered during the financial crisis. For some contracts that have been surrendered or exchanged at a low point in the market cycle, Bates prepared “what if” scenarios projecting the hypothetical living/death/portfolio values from a historical date to a future date to capture the appreciation that would have occurred if the positions had been held. Where appropriate, we have the capabilities to incorporate actual or hypothetical withdrawals and to also identify the tax implications involved. We have also provided present value analyses of living benefits incorporating life expectancy. 

Annuitization

  • To assist counsel in comparing the value of annuity contracts under various scenarios, Bates has prepared analyses that compare cash surrender values, annuitization values and annuity distributions of actual or hypothetical income streams at multiple points in time.  Our analyses can utilize life expectancy tables or model expected growth using Monte Carlo simulation with the results discounted into current dollars to assess damages, or provide damage alternatives.  Comparison of actual or hypothetical contract performance can also be evaluated against alternative investment products or portfolios.

1035 Exchanges of Annuities

  • In addition to evaluating annuity switches in regulatory matters, Bates has reviewed dozens of switches involved in retail litigation.  Our “Net Cost to Exchange” model has been very helpful for our clients and arbitration panels to better understand the quantitative and qualitative components of these exchanges including contract performance, bonus recapture, surrender charges and contract features.    

Fees/Expenses/Charges

  • We have successfully itemized and compared fees within various insurance products to other investment alternatives. One comparison included variable annuity subaccounts and evaluated the cost of ownership to hypothetical investments in alternative class A and class C open-end mutual fund shares. Our analyses included a detailed breakout of annual fees, rider fees, sales charges and operating expenses to calculate the total cost of ownership.

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