What is the basis for pricing variable annuities?

The basis for pricing variable annuities is primarily the Net Asset Value (NAV). A variable annuity's value fluctuates based on the performance of the underlying investment options, which are typically mutual funds. Each of these investment options has its own NAV, which reflects the current market value of the fund's assets minus its liabilities, divided by the number of shares outstanding.

As the underlying investments rise or fall in value, the price of the variable annuity adjusts accordingly. Therefore, investors in variable annuities do not receive a fixed interest rate; rather, their returns are dependent on the performance of the market and the specific investments chosen within the annuity contract. This aligns with the nature of variable annuities, which offer the potential for growth through market exposure, making NAV a fundamental element in determining the pricing and value of these products.