The Performance of Variable Annuities

Variable annuities have become increasingly important in retirement plans. This paper provides an examination of the investment performance of variable annuities for the period year-end 1973 to year-end 1988. Returns, risk, and selectivity measures are analyzed for the sample of annuities, for individual variable annuities, and for subsamples of annuities with similar portfolio size and turnover. While the investment returns of variable annuities were greater than inflation over the period, the returns materially trailed the Standard and Poor’s 500 even after accounting for variable annuities’ below-market risk.