Insurers May Be in for More Misery (Update)

The following article, originally published Nov. 5, is being republished to provide clarification of certain points about equity index annuities. Responses to the original story from Aviva and American Equity Investment Life Insurance Co. also follow this article.

Insurance companies that have sold billions of dollars worth of annuities that guarantee interest payments even when stock indices fall could face increasing pressure on their general accounts if the current downturn continues for an extended period of time.

Equity index annuities (EIAs), also known as fixed index annuities, pay holders an interest rate that is based on the performance of a market index, such as the S&P 500, which is down 38% this year. As the index goes up or down, so does the amount of interest the insurer pays the annuity holder. However, EIAs guarantee the principal and offer a minimum guaranteed interest rate, generally about 3% (the "fixed" component). ...