Last updated: April 12, 2026 | By Jason Caudill, MBA | Reviewed by the MyAnnuityStore Editorial Team
Proprietary Index Strategies on Fixed Index Annuities: What They Are and How to Evaluate Them
Most fixed index annuities today offer at least one proprietary index strategy alongside the S&P 500. These indices are created specifically for use in insurance products, typically by major investment banks. They offer higher participation rates than S&P 500 strategies because of a key feature: volatility control. Understanding how they work, when they perform, and what to watch out for is essential before you allocate money to one.
Key facts about proprietary FIA indices:
- Created by investment banks for exclusive use in insurance products
- Use volatility-targeting to reduce option costs and allow higher participation rates
- Participation rates of 100%+ are common; uncapped structures are available
- Performance is dampened during strong bull markets because the index reduces equity exposure when volatility rises
- Most have limited live history. Back-tested performance is not the same as actual history.
- The index itself cannot be bought as an investment. It exists only inside an FIA contract.
What Is a Proprietary Volatility-Controlled Index?
A proprietary index in an FIA context is a rules-based index created by a bank or carrier specifically for use in insurance products. Most are volatility-controlled, meaning the index automatically adjusts its allocation between the underlying equity basket and a low-return cash or bond component to maintain a target volatility level, typically 5%, 7%, or 10% annualized.
When market volatility rises (measured by the VIX or actual index volatility over a lookback window), the index reduces its equity weight and holds more cash. When volatility falls below the target, equity weight increases. The result is an index that rarely achieves the full gains of an up market, but also limits downside during volatile periods.
This behavior reduces the cost of options written on the index. Lower option cost means the carrier can offer higher participation rates, sometimes 100% or above, without cap. For buyers in a flat or low-volatility market environment, the math can work in their favor compared to a capped S&P 500 strategy.
Why Carriers Use Proprietary Indices
The S&P 500 is well-known, but options on it are expensive. Implied volatility on S&P 500 options routinely runs 15% to 25% or higher during periods of market stress. That makes it costly for a carrier to offer uncapped or high-cap participation.
A volatility-controlled proprietary index has managed volatility, typically 5% to 7%. Options on a low-volatility index cost significantly less than options on the S&P 500. Lower option cost means the carrier’s option budget goes further, which translates to better terms for the buyer.
The index itself is typically maintained by a major investment bank (JPMorgan, Barclays, Credit Suisse, Bank of America, SG/Societe Generale, and others). The carrier licenses the index exclusively or semi-exclusively for use in their FIA products.
Common Proprietary Indices and What Makes Each Different
JPMorgan MOZAIC II (and variants)
One of the most widely used proprietary indices in FIAs. MOZAIC is a multi-asset index combining equity, fixed income, commodities, and volatility components with a 5% volatility target. Its multi-asset structure means it does not track any single market closely. In some years (notably 2022, when both stocks and bonds fell), MOZAIC’s uncorrelated components provided meaningful positive returns for FIA buyers while S&P 500 strategies returned 0%.
Barclays Trailblazer Sectors 5
A sector-rotation index that allocates among U.S. equity sectors based on momentum signals, with a 5% volatility cap. It holds whichever sectors show the best recent performance, which can result in concentrated positions. In strong momentum markets, Trailblazer can outperform a broad index. In sideways or choppy markets, sector rotation costs can drag on returns.
SG Barclays Global MA
A global multi-asset index with a 5% volatility target that allocates across global equity, bonds, and alternatives. The global diversification means it is not highly correlated with U.S. equity performance, which can be an advantage in years the U.S. market underperforms global peers.
Bank of America ML Destinations 5
A trend-following, multi-asset index with a 5% volatility target. Uses momentum and trend signals across equities, fixed income, and commodities. Strong in trending markets, weaker in choppy sideways markets where trends reverse frequently.
Credit Suisse Momentum
A momentum-based index that rotates between U.S. equities, international equities, and fixed income based on relative momentum over a trailing period. The Credit Suisse/UBS restructuring has affected some product availability, but the index methodology continues under successor licensing.
How to Evaluate a Proprietary Index
Not all proprietary indices are equally transparent or useful. Use these criteria before allocating to one.
1. Live history vs. back-tested history
Most proprietary indices have less than 5 years of live trading history. The remaining history in the marketing materials is back-tested, meaning the index methodology was applied retroactively to historical data to simulate how it would have performed. Back-tested results almost always look better than live results because the methodology was designed knowing what happened.
Ask the carrier or your agent: how many years of live (actual) history does this index have? If the live history is less than 3 years, treat the performance illustration with appropriate skepticism.
2. Volatility target level
A 5% volatility target is more conservative than a 10% target. Lower targets mean more time in cash during volatile markets, which dampens returns. Higher targets take on more risk and more closely resemble a traditional index fund. Most buyers are best served by a 5% or 7% volatility target, which balances option cost savings against participation.
3. Participation rate and structure
How much of the index gain do you actually receive? A 100% participation rate on a proprietary index with 3% average annual returns may underperform a 9% cap on the S&P 500 in a strong bull market. Model both scenarios, not just the participation rate headline.
4. Spread or fee on the index
Some proprietary index strategies include a spread or annual fee deducted from performance before the participation rate is applied. A 1.5% spread on a volatility-controlled index with 4% average returns reduces your credit to a 2.5% base before applying the participation rate. Always confirm whether the participation rate is net or gross of any index fees.
5. Index provider reputation
Stick with indices created and maintained by major, well-established investment banks. The index methodology, governance, and calculation are handled by the bank, not the carrier. If the bank discontinues the index or undergoes a significant corporate event, the carrier must offer a replacement strategy, which may have different performance characteristics.
| Evaluation Factor | Green Flag | Red Flag |
|---|---|---|
| Live history | 3+ years of actual index data | Less than 2 years live; mostly back-tested |
| Volatility target | 5-7% (balanced) | Below 4% (too conservative) or above 12% (nearly unconstrained) |
| Participation rate | 100%+ with no hidden spread | High participation rate with 1.5%+ spread reducing net credit |
| Index provider | Established major bank | Unknown or boutique provider with thin governance |
| Documentation | Publicly available index methodology | No publicly available rules; carrier-controlled calculation |
When Proprietary Indices Outperform (and When They Do Not)
Proprietary volatility-controlled indices have specific conditions under which they tend to perform well and conditions under which they fall short of a direct S&P 500 strategy.
Proprietary indices tend to outperform in:
- Flat or sideways markets where the S&P 500 cap is never reached
- Volatile years where the volatility target mechanism reduces drawdowns
- Diversified asset class environments where the multi-asset components provide uncorrelated returns (2022 was an example for some multi-asset indices)
Proprietary indices tend to underperform in:
- Strong, sustained bull markets (2019, 2021, 2023) where a 9-10% S&P 500 cap is easily hit and the proprietary index’s dampened returns fall short
- Low-volatility bull markets where the volatility target keeps the index near 100% equity exposure but at lower absolute volatility than the real market
- Trending momentum markets where the proprietary index is slow to shift allocations
The honest answer is that neither S&P 500 nor proprietary indices are reliably better over a full 10-year contract. Splitting your allocation between both is a common, rational approach to reduce crediting method concentration risk.
Related Resources
- Fixed Index Annuity Complete Guide
- S&P 500 Crediting on FIAs
- Participation Rate Crediting Method
- Spread and Margin Crediting Method
- Top 10 Best Fixed Index Annuity Companies
- Current FIA Cap & Participation Rates
Frequently Asked Questions
What is a proprietary index on a fixed index annuity?
A proprietary index is a rules-based index created by an investment bank specifically for use in insurance products. Most are volatility-controlled, meaning they automatically adjust equity exposure to maintain a target volatility level. This makes options on the index cheaper, which allows the carrier to offer higher participation rates than a standard S&P 500 strategy.
Why do proprietary indices offer higher participation rates?
Volatility-controlled indices have lower option costs because the controlled volatility makes the options less expensive to write. The carrier’s option budget goes further on a 5% volatility index than on the S&P 500 (which may have 15-25% implied volatility). The savings are passed to buyers as higher participation rates, often 100% or uncapped.
Are proprietary indices safe?
The principal guarantee is the same as any other FIA strategy. Your account value cannot fall below zero due to index performance. The risk with proprietary indices is not principal loss but underperformance relative to alternative crediting strategies. You could earn less than you would have on an S&P 500 strategy in strong bull market years.
Is back-tested performance reliable for proprietary indices?
No, not fully. Back-tested performance is simulated by applying the index methodology to historical data that was known when the index was designed. This creates an inherent selection bias toward strategies that look good in hindsight. Always ask how much live history the index has before using back-tested results in your planning assumptions.
Should I split my FIA allocation between S&P 500 and a proprietary index?
Many buyers do exactly this. Splitting allocations reduces crediting method concentration risk. In years when the S&P 500 strategy caps out and the proprietary index lags, the S&P 500 portion benefits. In flat or volatile years when the proprietary index’s participation rate delivers more, that allocation contributes. Neither strategy dominates across all market environments.
Sources & Citations
- LIMRA Secure Retirement Institute
- NAIC: National Association of Insurance Commissioners
- CBOE: VIX Volatility Index
- Annuity.org: Fixed Index Annuity Guide
Disclosures: Educational information only. Past index performance, including back-tested results, does not guarantee future crediting. Index participation rates and product features change frequently; verify current contract terms before purchase. Guarantees are subject to the claims-paying ability of the issuing insurer.
See also: For current participation rate benchmarks and a comparison of cap vs. participation rate structures, see our FIA participation rates guide.
