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October 01, 2010 at 08:00 PM
Based on 15 years of research, I have found annual reset index annuity crediting methods were priced to perform the same over time. What this means is if the same money is spent on options and the patterns of the historic stock market repeat, the returns come out pretty much the same over the long haul, whether you use an annual point-to-point or a yield spread or averaging or a monthly cap.
I am not saying a method crediting 100 percent of the annual point-to-point index gain delivers the same returns as another method crediting 100 percent of the averaged values of the index. What I am saying is if you had, say, 4 cents available to buy an option and got 100 percent participation in the average value, and if you spent a different 4 cents on an option and got 52 percent participation in the point-to-point gains, the gains you realized over time from both methods at these respective rates would be similar.
Results depend on market moves
This also does not mean if you spent 4 cents each to get the averaging method at 100 percent participation and 52 percent on the annual point-to-point, these two methods will produce the same return next year. Different methods produce different results depending on how the actual market moves. However, over time the returns are priced to average out about the same, except when the carriers ignore their formulas and play hunches.
