An examination of first-year credited interest for annual reset structured index annuities purchased in 2004 found a wide range of 2005 returns depending upon the structure and the date purchased.
As an example, an index annuity purchased in the summer of 2004 credited from 0% to 11% interest a year later–depending on the contract anniversary and index annuity selected.
In general, the annual point-to-point method with cap and monthly cap gain designs credited the highest interest rates, while daily and monthly averaging structures were lower.
The most consistent method was the trigger structure that credits a predetermined interest rate if the index does not end up lower at contract year-end. Annuities with trigger methods credited from a little more than 4% to about 6% during the year, comparing favorably with other savings vehicles.
Because S&P 500 index gains were modest for the year, with the exception of 12-month periods ending in July and August, the “more of less” concept of cap designs generally prevailed over yield spread or straight participation rate methodologies.
Monthly and daily averaging methods were kept grounded by an index year that was unremarkable in its constancy. By contrast, the monthly gain designs generally beat other averaging methods and were competitive with all point-to-point methods.
Broadly stated, annual point-to-point and trigger designs generally credited 5% to 6%, monthly cap gain paid out 4% to 6%, and monthly and daily averaging methods widely ranged from 0% to 5%.