NAIC Moves to Curb Backtested Fixed Index Annuity Illustrations

Are Fixed Index Annuity Illustration Rules Changing?

Yes, but not yet. In September, the NAIC working group that writes fixed index annuity illustration rules agreed to put standardized, prescribed index scenarios into its next draft, a step away from carrier-chosen backtested history. Nothing is final, and today’s illustrations still follow the old rules.

That matters if you have an FIA illustration in front of you right now. The projected values on it may be the most optimistic version you will ever see. Below is what regulators decided, why backtested numbers mislead, and how to read the illustration you have today.

What Did the NAIC Decide About FIA Illustrations?

On September 16, 2026, InsuranceNewsNet reported that the NAIC’s Life Insurance and Annuities Illustrations Working Group agreed to include prescribed up-and-down index scenarios in its next exposure draft. The group is chaired by Ben Slutsker of the Minnesota Department of Commerce.

• The SEC-style option: Bill Carmello, chief life actuary at the New York Department of Financial Services, backed an approach like the SEC’s for variable products. It uses fixed return levels instead of projections built on an index’s history.
• The consumer-advocate push: Birny Birnbaum of the Center for Economic Justice argued that there should be no scenario “other than explaining and demonstrating how the product operates.”
• Little appetite for longer lookbacks: members showed little support for simply stretching the historical period used to build high and low scenarios.
• The timeline: interested parties have nearly two months to submit proposals, and Slutsker expects the next discussion roughly two to three months later.

The pressure came from the top. In early September, Iowa Insurance Commissioner Doug Ommen told the group that illustrations creating “unrealistic expectations” are unfair and deceptive, according to InsuranceNewsNet. Regulators’ preliminary data on 25 to 30 market leaders found two-thirds illustrating at least one product or index above 10% a year, with some as high as 27%.

For the full background on the debate, see our earlier coverage of the battle over fixed index annuity illustrations.

Why Do Backtested Returns Mislead?

A backtest shows how an index would have performed if it had existed in the past. It is a simulation, not a record. Three things make backtested FIA illustrations look better than real life tends to be.

• Many indexes are young: many proprietary FIA indexes have only a few years of live history. Ommen described “backcasting” as showing performance “during years before the index actually existed.” Our guide to proprietary index strategies explains how these indexes are built.
• Volatility controls flatter the past: many indexes shift between stocks and cash or bonds to keep volatility steady. Designers build them knowing how past markets behaved, so the rules tend to look smart in hindsight.
• Today’s cap applied to every past year: illustrations take the current cap rate or participation rate and apply it to every historical year. Neither is guaranteed beyond the current contract year.

Same Index, Different Window

The lookback period alone can move the illustrated rate a lot. Here is a hypothetical index with the same 10% cap, illustrated over two windows.

Hypothetical example for explanation only. It does not represent any real index or product.

Nothing about the product changed between those two rows. Only the starting year did. That is exactly the choice regulators want to take away from carriers.

How to Read a Fixed Index Annuity Illustration Today

The new rules are at least months away, so read the illustration you have with these steps.

1. Find the guaranteed column first. It shows the worst case under the contract: the floor, minimum caps and surrender charges. That is the only column the insurer promises.
2. Treat the non-guaranteed column as a sales scenario. It assumes today’s caps, participation rates and spreads last for the life of the contract.
3. Write down the current crediting terms. Note each strategy’s cap, participation rate and spread, plus the contract minimums.
4. Ask how old the index is. If the live history is shorter than the illustrated period, the rest is backtested.
5. Ask for renewal history. Some carriers publish what they actually paid in later years on older contracts. That record tells you more than any projection.
6. If income is your goal, read the rider page. An income rider’s withdrawal percentage and roll-up are guaranteed, so that math doesn’t depend on index returns. Check it in our income rider calculator.

What This Means for Your Money

A fixed index annuity is a bond alternative with some upside, not a substitute for stocks. Judge it on what is guaranteed.

• Slow down if: the illustrated growth is the main reason you like the product. That number is the part regulators are about to rein in.
• The rule change matters less if: you are buying for the 0% floor, a guaranteed income rider or the insurer’s financial strength. None of those depend on the illustration.
• Compare more than one contract: current caps and participation rates vary widely between carriers. See today’s numbers on our fixed index annuity rates page, and read product breakdowns in our annuity reviews.

Will Fixed Index Annuity Illustrations Change?

Very likely, but slowly. The working group’s next draft will include standardized scenarios, proposals are due in about two months, and any final NAIC model still has to be adopted state by state before carriers change their software. Until then, read every fixed index annuity illustration with the guaranteed column first.

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