CAS Indexed Annuity Crediting Strategies and Interest Rate Concepts

Question 1

What is the primary benchmark index most commonly used in fixed indexed annuities?

Accepted Answer

S&P 500 Index

Answer

The S&P 500 is the most widely used index benchmark in fixed indexed annuities due to its broad market representation and widespread familiarity among consumers.

Question 2

In a fixed indexed annuity, what happens to the policy owner's principal if the linked index performs negatively during a crediting period?

Accepted Answer

The principal is protected and no interest is credited for that period

Answer

A core feature of fixed indexed annuities is downside protection: the principal is guaranteed against market loss, and in a down market period the credited interest is simply zero rather than negative.

Question 3

What is a 'participation rate' in a fixed indexed annuity?

Accepted Answer

The percentage of index gains credited to the policy owner

Answer

A participation rate determines what proportion of the index's positive performance is credited to the annuity owner, for example a 70% participation rate on a 10% index gain yields a 7% credit.

Question 4

Which crediting method calculates interest based solely on the difference between the index value at the start and at the end of a contract term?

Accepted Answer

Annual point-to-point

Answer

The annual point-to-point method compares the index value at two discrete points in time—start and end of the term—ignoring all intra-period fluctuations.

Question 5

What is an interest rate 'cap' in a fixed indexed annuity?

Accepted Answer

The maximum interest rate that can be credited during any crediting period

Answer

A cap limits the maximum interest that can be credited in a period; if the index gains 15% but the cap is 8%, only 8% is credited to the account.

(CAS) Certified Annuity Specialist Practice Test

(CAS) Certified Annuity Specialist Practice Test

CAS Indexed Annuity Crediting Strategies and Interest Rate Concepts