Stone Ridge Revives Effort to Build an Annuity Alternative

Stevens predicted that, in 2019, a LifeX program using AAA assets could increase the tax-equivalent returns for a 75-year-old male to 9.4%, from a risk-free return of about 1% for a similar AAA-asset investor not getting a boost from longevity pooling.

Stone Ridge emphasized in risk disclosures in the report that LifeX shares would not be an interest in an insurance contract or an annuity contract.

"Investors in LifeX will not benefit from the consumer protections provided by state insurance laws and regulations, including the protection afforded by state guaranty funds, and there is no insurance company or other third party that will be obligated to make distributions in the event the fund runs out of assets prior to the fund liquidation date," the company said.

Instead an annuity or a life insurance policy as the container, the LifeX program would use would longevity pooling inside a mutual fund, the company said.

The company noted that one risk was that, if the investors lived much longer than program designers expected, the group of consumers who signed up for a LifeX fund in a given year could exhaust the assets before 25 years.

Stone Ridge contended that the lack of insured payout guarantees would help keep the product simple and affordable.

Stone Ridge ended up putting the launch of that product on hold in early 2020 after the COVID-19 pandemic came to light.

The New Product

Stone Ridge has not released details about its new longevity-based product project, but a representative said via email that the firm has been working quietly on the product for more than five years.

The initial product design made public before the pandemic "revealed the core innovation: monthly income generation via longevity pooling in a 1940 Act registered fund," the representative said. "Stone Ridge has continued to refine the product since then."

New Directions

Stone Ridge is one of several firms working on new strategies for helping retired people pay their bills.

Guardian Capital, a Toronto-based firm, has worked with Moshe Milevsky, a York University finance professor, to create new products based on a modern tontine framework.

Like the LifeX program, a tontine is a fund that provides payments to participants based partly on how long each participant lives.

Bob MacDonald, a former CEO of Allianz Life of North America, has proposed helping consumers save using endowment contracts, or products set up in such a way that a large, lump-sum initial payment would increase to a larger amount after the end of a specified term. The client could then take the cash out in the form of a lump sum or a stream of payments.

Correction: An earlier version of this article gave an incorrect description of the fund framework for the original version of the LifeX program. The program used a mutual fund as the container for the longevity pooling arrangement.

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