Real-World Index Annuity Returns

From: Financial Planning Association

  • This paper offers the first empirical exploration of fixed index annuity (FIA) returns based on actual contracts that were sold and actual interest that was credited.
  • FIAs are designed to have limited downside returns assocated with declining markets, and achieve respectable returns in more robust equity markets.
  • Studies that have criticized FIAs are usually based on hypothesized crediting rate formulae, constant participation rates and caps, and unrealistic simulations of stock market and interest rate behavior. When actual policy data are used, the conclusions change.
  • The returns of real-world index annuities analyzed in this paper outperformed the S&P 500 Index over 67 percent of the time, and outperformed a 50/50 mix of one-year Treasury bills and the S&P 500 79 percent of the thime.
  • This study is exploratory, because although it is based on actual contracts and actual crediting rates, the policy data set is neither randomly selected nor comprehensive based upon data provided by 15 FIA carriers.
For the full paper: