RILA's have come a long way since AXA rolled out Structured Capital Strategies a decade ago.
Initially conceived as a tweener product to generate returns somewhere between a fixed indexed annuity and an equity product while provide some degree of downside protection, today's most innovative products have potentially made the efficient frontier more efficient.
With uncapped participation rates that exceed 100% in many products today, there exists the potential for RILAs to now produce the same or better upside performance as an equivalent ETF, despite the lack of dividend participation. The gravy on top is the downside protection.
Rafferty Annuity Framing has developed a simple tool to provide some context on this matter and answer the following question: With a participation rate of more than 100%, at what CAGR must a price return index perform over a given time period to offset the lack of a dividend, and do as well or better than the equivalent total return version of that index in ETF format?
More a thought exercise than anything else, this new tool is meant to help RILA purveyors and distributors find new ways to position this developing annuity category as more than just an annuity, but perhaps a more attractive risk/reward equity proposition than traditional ETFs and funds in an environment in which equities are likely to face more headwinds going forward.