FIA Forecast Credits & FIA Model Allocations

Fixed index annuities (FIAs) may present policyholders with as many as 20 choices of crediting strategies, with multiple unfamiliar indices and bewildering terms like “participation”. A common misperception is equating well-known benchmark indices with “safe choices”, when in reality allocating only to benchmarks may not be optimal.

A key challenge is assessing crediting strategies with different participation rates and how that is going to affect interest credited. Can we compare a strategy with 40% participation in a benchmark index vs. another with 125% participation in a custom risk control index? Is it sensible to look only at past performance?

Few resources have been available to help financial professionals understand custom indices in FIAs. Now The Index Standard® has developed two breakthrough products: 

  • FIA Forecast Credits provide expected rates of return of individual crediting strategies.
  • FIA Model Allocations are suggested allocations to the crediting strategies in an FIA most likely to generate the highest long-term returns, while diversifying risk.

FIA Forecast Credits and FIA Model Allocations are first-of-their kind, data-driven tools that allow financial professionals to compare crediting strategies between different FIAs and within an FIA. They can serve as the basis of informed discussions with clients about optimal allocations tailored to clients’ individual goals.

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FIA Forecast Credits

Based on The Index Standard’s raw forecast returns for indices used in FIAs, we run 10,000 simulations for each crediting strategy, factoring in its raw index forecast, participation and all other relevant features such as spreads, caps, crediting frequency and fees. By modelling the index and annuity features in full, this forward-looking approach enables a direct comparison between different crediting strategies. We allow you to easily compare 40% participation in a benchmark index vs. 125% participation in a risk control index on an apples-to-apples basis.

The Index Standard® produces three values for the Forecast Credit for each crediting strategy: Conservative, Moderate, and Strong.

FIA Forecast Credits

FIA Model Allocations

Model allocations are suggested allocations to FIA crediting strategies using data from The Index Standard® Forecast Credits, based on the expected risk/return characteristics of individual crediting strategies and the concept of diversification, long established in financial theory.

The Index Standard® runs two FIA crediting strategy allocation models: one allocates weights equally to each selected crediting strategy; the other tilts allocations based on Moderate Forecast Credits. Our model allocations are updated monthly to reflect current FIA parameters (e.g. participations) and index forecasts.

FIA Model Allocation

FIA Model Allocation Examples