Who assumes the investment risk in a fixed annuity contract?

In a fixed annuity contract, the insurer assumes the investment risk. This means that the insurance company is responsible for managing the investments that back the annuity, and they guarantee a specific return to the annuitant, regardless of how the underlying investments perform. The insurer pools the premiums received from multiple policyholders and invests them in a manner that is intended to meet the guaranteed interest rates without exposing the annuitant to the risks of investment fluctuations.

The annuitant, on the other hand, is primarily concerned with receiving a stable income or payment during retirement but does not take on the risk associated with the investments. If the investments perform poorly, the insurer still has to uphold the terms of the contract and provide the promised returns. This characteristic of fixed annuities is a significant advantage for those looking for security in their retirement planning.

The investment manager and the policyholder do not assume the investment risk in the same way, as the investment manager acts on behalf of the insurer, and the policyholder is typically concerned with the product's benefits rather than the underlying investment risk. Therefore, the proper identification of who assumes this risk emphasizes the role of the insurer in guaranteeing the performance of the annuity.