Using a RILA as an Alternative Asset Allocation for Fixed Income

Executive Summary

Registered Index-Linked Annuities (RILAs) offer a valuable tool for providing an element of risk management with certain investors. By linking interest crediting to a market index while providing an element of downside protection through the use of a buffer or floor when held through the Strategy Term, RILAs can improve risk-return tradeoffs.

This whitepaper analyzes Dual Directional Yield Crediting Strategies. They’re unique strategies available for six-year Strategy Terms in the ForeStructured Growth II (RILA). These Strategies stand out with:

• Strong & Stable Growth Potential: Historical analysis suggests Dual Directional Yield Strategies can deliver higher average returns than traditional bonds with lower volatility and a reduced risk of loss. For example, the 20% buffer Strategy would have had an average cumulative crediting rate of 36.6% for the period examined.
• Element of Downside Protection: These Strategies incorporate a buffer that absorbs initial index losses if held through the end of the Strategy Term, providing valuable protection against market downturns. The 20% buffer would have provided 100% protection from losses to the credited interest from Performance Credits for the period examined.
• Yield Potential: Quarterly Performance Credits are generated when the index meets specific performance thresholds (Performance Trigger), providing an income stream, through Performance Credits, that can be withdrawn without Withdrawal Charge, retained in the Performance Credit Account to earn interest at a fixed rate, or reallocated to another available Crediting Strategy at the Contract Anniversary for further growth opportunities. Performance Credits would have been provided in 93% of the 7,237 quarters historically with the 80% Performance Trigger.¹

By combining these features, the Dual Directional Yield Crediting Strategies may offer a compelling alternative to traditional fixed income for certain long-term investors within a well-diversified investment portfolio. Overall, the Dual Directional Yield Crediting Strategies offered, for the period examined, the potential for higher returns, lower volatility, and better risk-adjusted performance compared to many bonds,² which may make it a potential alternative for certain bond investors seeking stability and growth.