Trouble may be brewing for indexed annuity shops, just when the products were starting to take off in popularity. A lawsuit alleging that Security Benefit Life Insurance Co. engaged in a fraudulent scheme related to its indexed annuities hints there might be rough tides ahead.
The lawsuit is Howard Rosen v. Security Benefit Life Insurance Co. and regards the insurer’s use of proprietary indexes in two of its indexed annuity products starting near 2011.
Proprietary, also known as hybrid, indexes are often built as a combination of a market index such as the S&P 500 plus another feature like cash to help control for volatility. And because of this volatility control, insures can market the products as “uncapped”, therefore, making them more attractive.
In the lawsuit, plaintiff's claim that their insurer’s annuity products were “misleading and deceptive.” A spokesman for Security Benefit, Michael Castino, said the company plans to defend itself against the suit.
Since many products in the hybrid indexed annuities sector are marked similarly to the ones in the Security Benefit lawsuit, there could be negative implications for other providers.
In the lawsuit was filed in California on October 16, plaintiffs say, that Security Benefits "deceptively illustrated the performance" of the Morgan Stanley Dynamic Allocation Index Account and Annuity Linked TV Index as "capable of producing double-digit returns to the purchasers of a Secure Income or Total Value Annuity."