Late last year we explained why index annuity carriers were making changes so rapidly. It all boiled down to interest rates (10-year treasury) and market (S & P 500) volatility.
Let’s equate it to the grocery store. Say you want to buy apples on a weekly basis. The number of apples you buy is a function of
- your apple budget, and
- the price of apples that week.
Index annuities are very similar. As interest rates on long term bonds rise (see below), the insurance company has more money to spend on the purchase of S & P options (apple budget).