Variable Annuity Refund System Using Benchmark Comparison
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Solution Overview
Problem
Annuity account holders are hesitant to invest in variable annuities due to the risk of asset value decline, as the value of the annuity can decrease with the securities fund, leading to potential losses.
Innovation Solution
A computer system that processes data to compare the actual performance of a variable annuity fund to a benchmark, determining if a refund is necessary based on this comparison, and if so, calculates and applies the refund amount to the asset value, thereby updating the account value and providing an output signal indicating the change.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Power
If the annuity account is invested in a variable fund, then the potential investment return is improved, but the risk of asset value decline increases
Solution Approach 1:
The patent applies preliminary anti-action by establishing a guarantee mechanism before investment losses occur. The insurance company provides a floor guarantee that prevents the account value from falling below a certain level, thereby preemptively counteracting the potential harmful effect of market declines. This resolves the contradiction by allowing investors to access variable fund returns while having preliminary protection against value decline.
Solution Approach 2:
The patent converts the harmful effect of fund management fees into a beneficial feature by making them refundable under certain conditions. When the fund underperforms or experiences losses, the previously charged management fees are refunded to the account, transforming the原本的 harm (fee erosion of returns) into a benefit (additional cushion against losses).
2Ease of operation
If a management fee is charged to the annuity account, then the investment management service is improved, but the net asset value of the account deteriorates
Solution Approach 1:
The patent applies parameter changes by making the management fee parameter conditional and dynamic rather than fixed. The fee structure changes based on fund performance: when the fund achieves certain performance thresholds or avoids losses, the management fee is refunded or reduced. This transforms the management fee from a constant deduction into a variable parameter that adjusts based on actual investment outcomes, thereby reducing its negative impact on net asset value while maintaining management services.
3Quantity of substance
If the fund value declines during the deferral period, then the asset value of the annuity deteriorates, but the management fee already charged cannot be recovered
Solution Approach 1:
The patent applies the discarding and recovering principle by allowing the recovery of management fees under specific conditions. When the fund experiences losses or underperformance, the previously charged management fees are discarded (refunded) back to the account. This resolves the contradiction by enabling the recovery of fees that would otherwise be lost, thereby compensating for asset value declines and protecting the annuity holder's interests.
Data Source
AI summary
A system for administering a variable annuity account includes a processor and a memory in communication with the processor. The processor is adapted to: access from a memory storage device data indicative of actual performance over a time period of a fund within the variable annuity account; access from a memory storage device data indicative of benchmark performance of the fund; compare the actual performance data to the benchmark performance data, and store the result of the comparison in the memory; based on the results of the step of comparing, determine whether to refund to the account an amount; if the amount is to be refunded, access data indicative of the refund amount; access data indicative of the asset value of the account; determine an updated asset value based on the asset value and the amount to be refunded; store the determined updated asset value in a memory storage location; and provide an output signal including data indicative of the change in the asset value of the account.