Top story: Experts foresee changes to fixed indexed annuities after court ruling on 151A

But Grogan anticipates that the FIA’s key benefits–the ability to benefit from market gains without bearing the attending downside risk associated with variable annuities–will remain.

Grogan also foresees a simplification of the products, notably in the formula used for crediting interest, which is based on changes in the index to which the FIA is linked.

Like other fixed annuities, FIAs offer a guaranteed minimum rate of return for a certain period, even when the market dips, sources indicate. But since the products are tied to an index, such as the S&P 500 or the Dow Jones Industrial Average, FIAs are also credited with a return based on the allowed percentage of gain in that index, if there is a gain. This percentage, known as the participation rate, typically ranges from 50% to 100% of the index price gain, excluding dividends.

Some companies also place caps on the amount of interest that can be credited to their FIA. Most of these also have a surrender charge, assessed either as a percentage of assets or as a charge to earnings. The latter, known as a market value adjustment, might kick in when the investor trades in one annuity for another paying a higher interest rate.

Though FIAs are potentially attractive to their clients, many producers have traditionally viewed the moving parts in the products–such as interest and participation rates, guarantee period, cap and surrender fees–as making for a difficult, complicated sale. That perception should change, says Ingersoll, as products offering fixed, multi-year guarantees become more prevalent.

“If the carriers simplify the products, then there may less risk for the insured,” adds Grogan. “But it may be a while before we see any substantive changes to fixed indexed annuities. Insurers typically don’t make such adjustments until they have to come out with a new product.”

Raggio is less sanguine about prospects for FIA sales, except among producers who are, or endeavor to become, securities-licensed. Those who only have a life insurance license will have access to only traditional fixed annuity products, he predicts.

Raggio allows, however, that a less stringent securities license may become available to producers to permit them to market FIAs alongside their traditional fixed portfolio.

Changes to the marketplace are already underway, he adds. His objections to Rule 151A notwithstanding–he believes the Securities Act of 1933 governing securities would have to be amended to incorporate FIAs and, thereby, permit SEC oversight–he views the developments positively.

“We’re now seeing a slight reduction in surrender charge penalties with many fixed-indexed annuities,” he says. “I’m also seeing carriers and broker-dealers taking a much harder line with their producers in respect to product suitability. So there is more securities license-type scrutiny. I think that’s a good thing.”