The Fight Over Fixed Index Annuity Illustrations (2026)

Why regulators are looking hard at FIA illustrations

A fixed index annuity is an insurance contract, not a market investment, but the interest it credits is tied to how an outside index moves. That link is exactly why the illustration that comes with an FIA sale carries so much weight: it is the tool a buyer uses to picture how the contract could grow over time.

Through 2026, state regulators, consumer groups and industry associations have been arguing over what assumptions those illustrations should be allowed to use. Trade press coverage in February 2026 reported that some carriers had shown illustrated annual returns as high as 27%, a figure regulators found hard to reconcile with a document meant to help someone plan a conservative retirement.

The working group behind the review

The center of this debate is a body inside the National Association of Insurance Commissioners that studies how life insurance and annuity illustrations get built and regulated. Its formal name is the Life Insurance and Annuities Illustrations Working Group.

The NAIC writes model laws and model regulations; it has no direct authority over any single insurance company. Each state chooses on its own whether to adopt an NAIC model as written, change it, or skip it entirely. That means even a full agreement inside the working group only becomes real once individual states act on it, and that step alone can take years.

Why a September 2026 meeting mattered

Reporting in August 2026 described the working group moving into a "consensus phase," language that suggested the conversation had shifted from naming problems to drafting fixes. A session scheduled for September 1, 2026 was expected to dig into specifics, especially the illustrated crediting rate: the assumed annual return used to project how an FIA's value builds on paper.

A small change to that assumed rate compounds into a large swing in the projected value over a 10 or 20 year window, which is a big part of why regulators are treating the number so carefully.

How illustrated returns got this high

When regulators reviewed illustrations from several large FIA sellers, they found a wide spread of assumed annual returns, with some running far above what a typical stock index has actually delivered over time, up to that 27% figure reported in February 2026. That number stands out because FIAs are usually sold to people who want principal protection and steady growth, not the kind of upside that number implies.

Why carriers keep pushing the numbers higher

Part of the explanation is ordinary competition. When one carrier's product can show a bigger projected number on paper, a competitor's more conservative illustration can look weaker in the same sales conversation, even when it is the more honest one.

The concern is not that carriers compete for business. It is that competing through illustrations can end up rewarding whichever company assumes the rosiest scenario rather than whichever product actually holds up over the term.

The rulebook underneath it all: Model 245

Today's disclosure standard is the NAIC's Annuity Disclosure Model Regulation, generally referred to by its number, Model 245. It spells out what an annuity illustration or disclosure document has to cover, including benefits, limitations, surrender charges, guarantees and non-guaranteed elements.

Critics argue the model has not kept pace with the products it is supposed to govern. Many current FIAs run on engineered, volatility-controlled or proprietary indices that barely existed when the earlier disclosure standards were written. The question at the center of this review is whether Model 245 still gives buyers enough protection when a large share of an illustration's projected value comes from an index design and a backtest, rather than years of real trading history.

Who is arguing what

Four groups keep coming up in coverage of this issue, each pulling from a different seat at the table.

Indexed Annuity Leadership Council

The Indexed Annuity Leadership Council, known as IALC, speaks for companies and interests tied to the indexed annuity business. It generally argues that illustrations help buyers understand a product's mechanics, and it has pushed back on reforms it believes would unfairly limit product design or innovation.

American Council of Life Insurers

The American Council of Life Insurers, or ACLI, represents life insurers broadly. According to reporting from August 19, 2026, industry representatives objected to proposals that would tie a carrier's financial strength to illustration standards, arguing that kind of factor would be difficult to apply consistently from one company to the next. ACLI's broader position appears to favor one workable, uniform rulebook over a patchwork of subjective standards.

Life Insurance Consumer Advocacy Center

The Life Insurance Consumer Advocacy Center, or LICAC, argues from the buyer's side of the table. Its concern is less about whether a projection is technically legal and more about how people actually behave: many will remember a large number from page one long after they have forgotten a disclaimer buried on page twelve. LICAC has generally pushed for tighter caps on illustrated rates and clearer, plainer disclosure, particularly where a projection leans on a backtest instead of real market history.

New York State Department of Financial Services

New York's insurance regulator has a long history of setting a higher bar on consumer disclosure than most other states. Its role in this debate reaches beyond New York's own market: when a state with this much regulatory weight pushes for stronger standards on what can be illustrated, national carriers often adjust their materials everywhere, not just for New York customers, regardless of how the broader NAIC process eventually resolves.

The real issue underneath: backtested returns

Much of this debate comes down to one practice: backtesting. Backtesting applies an index's rules to historical market data to show what the index would have returned had it existed during that period.

Backtesting on its own is not dishonest. It is a reasonable way to explain how a strategy might have behaved under past market conditions. The trouble shows up in how a backtested number reads inside a sales illustration.

Why a backtest can flatter the numbers

Many newer FIA strategies run on proprietary indices with little or no live trading history. To fill that gap, a carrier can show how the index would have performed using historical data, calculated after the index's own formula was already finalized. Because that formula was built with the benefit of hindsight, the resulting backtest can look unusually strong.

That creates a quiet trap: the number on the page can look grounded in real market history, when the index itself never actually lived through most of that history. The performance shown was simulated after the fact, not experienced in real time as it happened.

What buyers actually take away

Disclosures typically state, somewhere in the paperwork, that an index is new, that a result is hypothetical, or that illustrated values are not guaranteed. In practice, many buyers focus on the large projected number and treat it as the likely outcome rather than one possibility among many.

What tends to get missed:

• The index behind the illustration may have little or no live trading history of its own.
• The illustrated rate may lean heavily on a backtest rather than real, lived performance.
• Caps, participation rates and spreads can all change after you own the contract.
• Non-guaranteed features are, by definition, not promised to continue at today's level.
• What you actually earn could land well below what the illustration showed.

Regulators are not only asking whether a given number is technically permitted under current rules. They are asking whether showing it, even with a disclaimer, leaves a buyer with a misleading impression of what to expect.

What could change

Based on the public reporting so far, the working group has several directions it could take:

• Cap the maximum illustrated crediting rate. A hard ceiling would directly limit how aggressive any single projection is allowed to look.
• Change how the rate gets calculated. This could mean more conservative required assumptions, or tighter limits on how much a backtest can drive the final number.
• Add stricter rules for young indices. An index with little or no live history could face additional limits or extra required disclosure language.
• Sharpen the disclosure language itself. Clearer explanation of what is hypothetical, how much real history the index actually has, and which parts of the illustration are not guaranteed.
• Standardize how illustrations are compared. A shared method across carriers would make it harder for any one company to win business purely through more optimistic assumptions.
• Settle the financial-strength question. Whether illustration standards should factor in a carrier's financial strength remains contested; industry groups had pushed back on the idea as of the August 19, 2026 reporting.

None of this happens quickly

Even a full agreement at the working group level is only the first step. From there, the usual path runs through NAIC committee review, drafting or amending the actual model regulation language, a formal NAIC vote to adopt the change, and then adoption state by state before any carrier has to change what it shows you. Each step in that chain can take months on its own, and individual states are free to move slowly or not adopt the change at all.

The bottom line

This debate is not about whether fixed index annuities are worth owning. It is about whether the illustration that comes with one gives a buyer a fair, realistic picture instead of a best-case story dressed up as a plan.

A high illustrated number can be persuasive, but persuasive is not the same as reliable when the number rests on an aggressive assumption or a favorable backtest. Until the NAIC's process plays out, which will likely take years to fully reach the market, the safest approach is to treat any FIA illustration as one hypothetical scenario rather than a promise. Ask what assumption the number depends on, how long the underlying index has actually existed, and what you would receive if the non-guaranteed pieces come in lower than shown. If you are weighing a specific contract, compare it against other options first before you sign anything based on an illustration alone.