The upcoming field tests – expected in 2023 – related to principle-based reserving for non-variable annuities (VM-22) should help the industry understand the implications on surplus volatility and required capital for fixed-indexed annuities. We encourage the insurers to participate in the tests and keep a close eye on the principle-based reserving and capital development. To that end, in this paper we:

• Describe the current statutory accounting rules governing indexed annuities.
• Provide an example demonstrating the non-economic nature of surplus volatility, and
• Examine a situation of a significant market decline in late 2018 to demonstrate a reduction in surplus.