Deferred Premium Annuity System With Dynamic Contract
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Solution Overview
Problem
Current financial products primarily focus on accumulation and transfer performance and risk to investors, lacking options for investors to convert unknown future asset values into guaranteed income streams without upfront premium payments.
Innovation Solution
A system and method allowing investors to convert the future value of assets or portfolios into non-cash settlement instruments with guaranteed income flows, contingent on option fees and adherence to specific guidelines or benchmarks, enabling deferred premium payments and flexible portfolio management.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If fixed deferred annuities are used to guarantee future income streams, then performance risk is transferred to the issuer, but investors face unsatisfactory commitments including inability to easily terminate and requirement to use investment as premium at purchase
Solution Approach 1:
The annuity contract incorporates dynamic elements allowing the investor to adjust the premium payment timeline. The contract transitions from requiring immediate premium payment to allowing deferred payment until the annuity start date, providing operational flexibility while maintaining the income guarantee. This dynamic structure resolves the contradiction by making the contract adaptable to investor needs.
Solution Approach 2:
The system establishes the annuity contract and guarantees in advance, but defers the actual premium payment action until a later date. The issuer commits to providing the guaranteed income stream based on future premium payment, allowing the investor to prepare and transfer assets without immediate cash outlay. This preliminary commitment with deferred execution resolves the flexibility issue.
2Reliability
If traditional annuities require premium payment at purchase, then the guarantee can be established, but investors lose the ability to use their existing asset portfolio and must make upfront cash payments
Solution Approach 1:
The system changes the parameter of premium payment timing from immediate to deferred. Instead of requiring cash premium at purchase, the contract allows the investor to transfer assets and defer premium payment until the annuity start date. This parameter change enables investors to utilize their existing asset portfolios rather than requiring upfront cash, while still establishing the annuity guarantee.
Solution Approach 2:
The annuity contract serves as an intermediary mechanism that bridges the investor's future asset value and the guaranteed income stream. The contract allows the investor to commit future assets as premium without immediate payment, using the contract structure to mediate between the desire for guarantee and the preference for retaining asset control until needed.
3Ease of operation
If investors bear performance risk directly as in mutual funds, then investment flexibility is maintained, but investors cannot transfer risk to the issuer
Solution Approach 1:
The investment approach is segmented into two distinct components: the investment phase where the investor maintains flexibility and controls the asset portfolio, and the guarantee phase where the issuer assumes performance risk. The annuity contract creates a clear segmentation between these functions, allowing the investor to enjoy flexibility during accumulation while transferring risk protection in the payout phase.
Solution Approach 2:
The performance risk is extracted from the investor's burden and transferred to the issuer. The annuity contract separates the investment management function (remaining with the investor) from the guarantee function (assumed by the issuer). This extraction allows the investor to maintain investment flexibility while removing the performance risk element, resolving the contradiction between flexibility and protection.
Data Source
AI summary
A system and method for providing an investor the ability to purchase an option or pay a fee to exchange a future value of an asset or a portfolio of assets, regardless of future performance or value, for at least one annuity outcome on a future date, where the outcome of such option is contingent on (1) a payment of the fee, and/or (2) maintaining the asset or portfolio of assets in accordance with at least one guideline or benchmark required for the delivery of the annuity outcome, the method comprising: determining a delivery of the annuity outcome based on an assessment of an underwritten strategy associated with an asset or portfolio of assets; and determining a fee payment amount or a series of fee payment amounts and at least one guideline required for the delivery of the annuity outcome.