{"id":9838,"date":"2021-10-28T10:49:00","date_gmt":"2021-10-28T15:49:00","guid":{"rendered":"https:\/\/www.figmarketing.com\/blog\/?p=9838"},"modified":"2022-05-18T14:37:43","modified_gmt":"2022-05-18T19:37:43","slug":"fixed-index-linked-annuity-fila-performance-characteristics","status":"publish","type":"post","link":"https:\/\/www.figmarketing.com\/blog\/fixed-index-linked-annuity-fila-performance-characteristics\/","title":{"rendered":"What is Fixed Index-Linked Annuity (FILA) and How Does it Work?"},"content":{"rendered":"\n

Updated May 19, 2022, at 3:33 PM<\/em><\/p>\n\n\n\n

What are the performance characteristics of the fixed index-linked annuity, or FILA? Before we get into the product’s appeals, let’s take a step back to get a wider angle.<\/p>\n\n\n\n

The risk and return spectrum of index-linked annuities vary. The easiest way to visualize where different annuity products slot into the market is by using a spectrum of risk and return.<\/p>\n\n\n\n

On one end is a classic declared rate fixed deferred annuity (FDA), and on the other end is a variable annuity (VA), with index-linked products falling in between.<\/p>\n\n\n\n\n\n\n\n

Conceptually, organizing products this way makes a lot of sense and that\u2019s how the products are often positioned with clients. The spectrum might look something like this:<\/p>\n\n\n\n

\"index-linked<\/figure><\/div>\n\n\n\n

Where Fixed Index-Linked Annuities (FILAs) Fit<\/h2>\n\n\n\n

On the spectrum above, FILAs could stretch all the way from the beginning of the FIA and to the RILA section, depending on the client\u2019s performance and choices. <\/p>\n\n\n\n

But for the purposes of this discussion, we assume that the client elects to put gains at risk throughout the term even though, in reality, they can (and potentially would) choose to take their gains off of the table by selecting a 0% floor account that would mirror the performance of an FIA going forward.<\/p>\n\n\n\n

Real-World Simulation of Risk and Return: Participation Rate<\/h2>\n\n\n\n

To get a feel for how these products might perform using realistic market return simulations, we ran 1,000 S&P 500-based 10-year scenarios through each product chassis using fair-market participation rates.<\/p>\n\n\n\n

The chart below shows the results of the simulation. The number in the box is the average annualized return. The box represents the middle 50% of returns with the top and bottom quartiles represented by the whiskers.<\/p>\n\n\n\n

For FILAs, the 0% floor rates match the rates in an FIA. The rates for the -10% floor match the rates for RILAs, which we assume is also allocated to a -10% floor account.<\/p>\n\n\n\n

\"participation<\/figure><\/div>\n\n\n\n

Related: The Emergence of the Fixed Index-Linked Annuity (FILA)<\/a><\/h4>\n\n\n\n

In general, our findings are exactly what we\u2019d expect to see: taking more risk leads to greater returns.<\/p>\n\n\n\n