Which statement correctly describes AIR and separate account returns?

Which statement correctly describes AIR and separate account returns?

• A. AIR is the actual realized return of the separate account
• B. AIR is a guaranteed minimum return set by regulators
• C. AIR is an arbitrary rate set by the insurer for a separate account; only returns above AIR increase product values
• D. AIR affects the fixed account value only

Answer: (C)

AIR is an assumed rate used by the insurer for the separate account, not the actual investment result. It acts as a hurdle: only the portion of the separate-account return that exceeds this rate is credited to increase the product’s value. If the investment earns above AIR, the excess adds to the value; if it doesn’t exceed AIR, the credited increase doesn’t rise with the return. Regulators don’t set AIR, and it doesn’t apply to the fixed account. This is why the statement that AIR is an arbitrary rate set by the insurer for a separate account and only returns above AIR increase product values is the correct description.

AIR is an assumed rate used by the insurer for the separate account, not the actual investment result. It acts as a hurdle: only the portion of the separate-account return that exceeds this rate is credited to increase the product’s value. If the investment earns above AIR, the excess adds to the value; if it doesn’t exceed AIR, the credited increase doesn’t rise with the return. Regulators don’t set AIR, and it doesn’t apply to the fixed account. This is why the statement that AIR is an arbitrary rate set by the insurer for a separate account and only returns above AIR increase product values is the correct description.