Legacy Marketing Group is marketing among US investors the FlexMark Select Series single premium deferred index annuities, the firm's newest custom-designed proprietary fixed indexed annuity (FIA) series. Developed with Ameritas Life Insurance Corp., FlexMark Select is targeted at investors seeking 'more choice, control, and flexibility', and offers opportunities for upgraded earnings potential, income riders, and up to 20% liquidity potential.

The new FIA is linked to the performance of the newly developed BNP Paribas Momentum Multi Asset 5 Index, a rules-based index developed by the French bank to track the value of a hypothetical exposure to a range of asset classes and geographic regions.

Although custom indices with risk-control mechanisms started to exist in the FIA world in 2012, BNP Paribas has observed a quickly-growing demand from insurance carriers, according to David Serraf (pictured), equity derivatives structurer at BNP Paribas. "Volatility control indices help [insurance carriers] achieving two things: delivering uncapped crediting strategies to the end clients, and diversifying their offering vs. their peers in a competitive environment with low rates," said Serraf, adding that each carrier is different, "with different distribution model and sophistication levels", which proves that "this is a very innovative field with a lot of possibilities".

According to Serraf, BNP Paribas has been developing its own indices, as well as building partnerships with renowned asset managers in order to answer the different needs in the fixed indexed annuities segment. "The bank has also built distribution partnerships in all channels to leverage on the experience gained in the field," said Serraf. "It has definitely been a strong area for BNP Paribas over the past few years, with two successful products launched in the FIA market."

The bank is well positioned to continue serving US insurance carriers in this market, said Serraf, pointing that the US is a key pillar for the bank's growth strategy. "We have already developed a strong FIA business here in the US and look forward to expanding it even further in 2018," said Serraf. "BNP Paribas can leverage on a strong innovative platform, with notable structuring and hedging capabilities. This business is complementing the bank structured notes activities, and allows expanding BNP Paribas's footprint in the US."

According to Serraf, the new BNPP Momentum 5 Index has been specifically created for Ameritas Life Insurance Company, in partnership with Legacy, an exclusive large independent marketing organization (IMO) which is distributing the FIA.

"[The index] was designed to fit in an FIA chassis, with the aim of offering competitive returns and the protection brought by a risk control mechanism," said Serraf, adding that the index is based on three core principles: diversified components, risk parity dynamic allocation and a risk control mechanism.

According to Serraf, the BNPP Momentum 5 Index's objective is to provide exposure to a diverse range of asset classes ranging from developed and emerging equity/bond markets, to energy, gold and US real estate. As each asset class may behave differently depending on market cycles, diversification may potentially improve the index risk-return profile versus exposure to a single asset class, such as US equities.

"The universe is formed of a diversified spectrum of 14 underlyings, ranging from US and international equities to fixed income and commodities components," said Serraf. "The index selects up to eight components based on their recent performance. It then weights them based on a risk parity methodology. Finally, a 5% risk control mechanism is applied to aim at offering stable returns in all market environments and consistent rates to Ameritas."

The BNPP Momentum 5 Index is an 'Excess Return Index' meaning that the index level reflects the performance of any index components that are ETFs in excess of three-month USD Libor and inclusive of the value that would be derived from the reinvestment of any dividends and distributions by the issuer of any such ETFs and, with respect to components that are linked to futures contracts, the index level will not take into account any money market interest.

The US FIA market is dominated by market cap indices such as the S&P 500 and the Nasdaq 100, but the number of proprietary indices developed by investment banks has increased over the last few years. Proprietary indices such as the Bloomberg Barclays Aggregate Bond Index, Barclays Global Trailblazer Index and the Barclays Aggregate Bond Index, as well as the ML All Convertibles Investment Grade, Citi Dynamic Asset Selector 5 Excess Return Index, and several JP Morgan indices including the JP Morgan Efficiente, JP Morgan Mozaic Fixed Income Index and JP Morgan Meridian Index, all appear in live indexed annuities.

Related stories:
Demand for new underlyings is increasing as the FIA market grows, SRP Indexed Insurance Forum

Lincoln adds to indexed annuities, FIA market up by 15% in second quarter

Indexed annuities to fall further until DoL rules are clarified, Limra

Investors are seeking flexibility when paying their advisors, Nationwide

Indexed annuities make a lot of sense for many of today's savers, Pacific Life