A new study on index annuity performance is countering some negative conclusions about this performance that have been circulating.
The negative conclusions have appeared in both in theoretical academic papers and in articles in the popular press, contend David F. Babbel, Geoffrey VanderPal and Jack Marrion in research findings the three have posted online at the Wharton Financial Institutions Center.
Babbel is a professor of insurance and finance at The Wharton School of Business, University of Pennsylvania, Philadelphia; senior advisor to Charles River Associates, Boston; and fellow of Wharton Financial Institutions Center of Wharton.
VanderPal is chief investment officer of Skyline Capital Management, Austin, Texas, and holds a doctorate in business administration. Marrion is a doctoral candidate in cognitive bias in decision-making and president of Advantage Compendium, St. Louis.
Some index annuities have produced returns that have been truly competitive with bank certificates of deposit, fixed rate annuities and taxable bond funds, the researchers write. In addition, articles that are critical of index annuities often contain dubious assumptions which lead directly to negative conclusions previously circulated, they say.
The three reached the following conclusions in their study:
- Annuity returns have been competitive with alternative portfolios of stocks and bonds.
- Their design has limited the downside returns associated with declining markets.