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Real World Index Annuity Returns

16 Pages Posted: 7 Oct 2009 Last revised: 6 Jan 2011

David F. Babbel

University of Pennsylvania - The Wharton School - Finance and Insurance Departments; CRA International

Geoffrey VanderPal

Webster University

Jack Marrion

affiliation not provided to SSRN

Date Written: December 27, 2010

Abstract

• We offer the first empirical exploration of fixed indexed annuity returns based upon actual contracts that were sold and actual interest that was credited.
• Annuity returns have been competitive with alternative portfolios of stocks and bonds.
• Their design has limited the downside returns associated with declining markets.
• They have achieved respectable returns in more robust equity markets.
• Studies that have criticized FIAs are typically 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.
• Our study is exploratory, because although it is based on actual contracts and actual crediting rates, our policy data set is neither randomly selected nor comprehensive, based upon data provided by 15 FIA carriers.

Keywords: indexed annuities, retirement, optimal asset allocation

JEL Classification: G11, G22, G23, J26

Suggested Citation

Babbel, David F. and VanderPal, Geoffrey and Marrion, Jack, Real World Index Annuity Returns (December 27, 2010). Available at SSRN: https://ssrn.com/abstract=1482023 or http://dx.doi.org/10.2139/ssrn.1482023

David F. Babbel (Contact Author)

University of Pennsylvania - The Wharton School - Finance and Insurance Departments ( email )

215 Wakefield Road
Bryn Mawr, PA 19010
United States
610-527-1839 (Phone)

CRA International ( email )

John Hancock Tower
200 Clarendon Street, T-33
Boston, MA 02116-5092
United States
610-527-1839 (Phone)

Geoffrey VanderPal

Webster University ( email )

5760 Legacy Drive
Unit B3-131
Plano, TX Collin 75024
United States
5123086190 (Phone)

Jack Marrion

affiliation not provided to SSRN ( email )

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