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NAFA, the National Association for Fixed Annuities, is grateful for the coverage you give annuities and, in particular, your recent article Re-Examining Tax-Deferred Annuities. While your article explored variable annuities, we are providing some additional information regarding fixed annuities that you and your readers may find enlightening. You probably know that in the mid 90’s, fixed annuities were given their biggest face lift in perhaps two centuries when a group of actuaries conceived a different method of crediting interest. Fixed indexed annuities became a natural evolution of the traditional fixed annuity which offers just one method of crediting interest. Fixed indexed annuities are a traditional fixed annuity that offers owners an opportunity, often on an optional basis, to receive interest based on positive changes in a financial markets index coupled with insurance guarantees of purchase payments and minimum rates of interest.

We couldn’t agree more with your article’s main point that “tax deferral is still worth something. If you can pile up cash for years without carving out some for Uncle Sam, you'll have more cash to spend in retirement. IF -- and it's a big IF -- you're not paying too much for the annuity in the first place.” A recent report by Jack Marrion (President, The Advantage Compendium) posted at and dated November 2007 makes your point. NAFA does not believe that past performance is any indication of future performance, but believes that these products can deliver what they were created to deliver – a potentially a greater amount of credited interest than a life insurance company could declare and guarantee in advance as a fixed rate while protecting the customer from downside market risk. The report is below and if you’d like any additional information or clarification, please feel free to call me at 888-884-NAFA or email

5 Year Index Annuity Returns
There were 25 carriers active in the index annuity market in September 2002. Farmers, IDS, SunAmerica and Transamerica marketed term end point designs that have not yet reached the end of their index period and they cannot be included in the study. I asked the remaining 21 carriers for copies of customer statements with customer information whited-out for contracts issued closest to 30 September 2002 for a five year period ending 30 September 2007. Nineteen companies responded with details about 23 different products. This is the fifth year I have collected 5-year return data and I deeply appreciate the cooperation and support of the carriers, representing almost 90% of the industry, that were open in sharing what some of their policyowners earned in their index annuities. This carriers are:


American Equity

American Investors




Jackson National Life

Lafayette Life

Lincoln Benefit Life

Lincoln Financial Group


Midland National Life/NACOLAH

National Western



Sun Life

Standard Life of Indiana

Union Central

What Is Important
Index annuities are designed to be competitive with stated-rate annuities and to the best of my knowledge they are demonstrating that competitiveness. Half a dozen products credited annualized interest of 7% to 8% and almost all the rest credited interest in the 5% to 6% range.

FIAs credited from 27% to 254% more interest than the average CD over the last 5 years

The S&P 500 was running at an annualized return rate of 13.4% for the period and the average U.S. stock mutual fund hit 16.1% a year, a strong statement demonstrating that index annuities are not designed to compete against equity investments. However, the average annualized index annuity yield of 6.12% compares very favorably to the 5.0% attained yearly by the average taxable bond fund return, blew the socks off the 3.5% that was earned by a U.S. Savings Bond issued in September 2002, and pole-vaulted over the 2.5% achieved by the average CD over the same 5 years.

Fixed annuities, whether they are declared rate, indexed or payout, are for safe money needs.


Kim O'Brien
Executive Director
2300 E Kensington Blvd
Milwaukee, WI 53211
415-946-3532 (fax)

NAFA * 2300 E. Kensington Blvd * Milwaukee, WI 53211 * 888-884-NAFA
NAFA is the National Association for Fixed Annuities. NAFA was created to foster a better understanding of all fixed annuities, regardless of interest creditin strategies. It is the only independent, non-profit organization dedicated solely to the promotion and preservation of these unique products. Permission to distribute and/or reproduce this document for NAFA members may be given upon request. Any unauthorized distribution is strictly prohibited.

Last Updated: 12/7/2007 3:12:00 PM