Of the two types of annuities (fixed and variable), fixed annuities are designed to limit the market risk to the owner of the annuity contract. This is accomplished by the insurance company guaranteeing a minimum interest rate for the life of the contract, as well as a declared current interest crediting rate for a specified number of years.
For the investment of fixed annuity funds, the insurance company will use safe, secured instruments such as AAA Corporate Bonds or Treasuries. The insurance company guarantees the principal in the annuity contract and the minimum credited interest rate for as long as the contract is in force, or held to maturity. The insurance company assumes the investment risk to provide the guarantee. It is incumbent upon the insurer to provide the contractual benefits in the annuity policy even if the insurer's investments do not perform. The assets in a fixed annuity are considered to be the general assets of the insuring company.
No Management Fees
Because fixed annuities have no assets to manage, these annuities have no management fees. All of the money paid into the annuity earns interest immediately. The investment and management of the assets are the responsibility of the insuring company.