Keyport Offers Annuity Tied to Performance of The S&P 500 Stock Index

A Boston-based insurance company has just announced an annuity tied to the stock market's performance.

This month Keyport Life Insurance Co. started pitching KeyIndex, a single-premium annuity whose yield is pegged to the Standard & Poor's index of 500 stocks.

Keyport has already approached intermediaries, such as investment product marketing firms, about marketing the annuity to banks. The product requires a minimum investment of $5,000.

A leading annuity company, Keyport last year sold $900 million in annuities to over 400 banks, said John E. Arant 3d, a senior vice president at Keyport.

"We want to be the No. 1 provider to banks," Mr. Arant said.

Although 1994 figures are not in yet, one midyear ranking placed Keyport as the fourth-largest overall provider of annuities to banks and the third- largest provider of fixed annuities to banks.

Keyport is positioning the new annuity product as a "hybrid" - a mix between a variable and a fixed annuity.

The annuity pays a percentage of the increase in the S&P 500 over a five-year term. Although that percentage is not set, it is currently at 85%, Keyport said. The increase, or the appreciation, is similar to the growth potential feature of variable annuities.

Keyport said that KeyIndex earnings are based on the highest of the stock market values, compounded annually, over the five years.

"There are clients of banks who have been fixed-annuity-product and CD buyers who want participation in the equity market without market risk," Mr. Arant said.

If the market declines, the contract guarantees the principal and a minimum return of 3% of 90% of the principal. In offering guaranteed principal, this annuity most resembles a fixed annuity.

"The index rate appeals to customers who have been burned by renewal rates," said Kenneth Kehrer, president of Kenneth Kehrer Associates, a Princeton, N.J., firm that tracks annuities.

Although liquidity is an option with the product, it is best to leave your money in the annuity for the full five years, said Robert J. Scheinerman, a Keyport actuarial expert.

"If you need withdrawals, this is not the product for you," he said.

On top of federal penalty taxes, the investor may also not get back the entire principal, depending on the stock market.

The market-index annuity is a relatively new product. The only other product similar to this belongs to the Maryland-based Calvert Group. That product has been marketed by Talbot Financial Distributors for about a year.

Talbot, a New Mexico third-party vendor, calls the product a "guaranteed equity option," which is an option within a variable annuity. The option either guarantees 100% of the increase in the S&P over five years or a minimum of 3% compounded annually. To get access to that option, however, investors pay a 5% sales load.

Other types of market-indexed products have taken off recently. More and more banks are now offering indexed CDs, which also guarantee investor principal. For instance, several big banks, such as NationsBank Corp., Citicorp, and Shawmut National Corp., have market-indexed CDs.

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