Fluctuating Participation Rates

Why do participation rates fluctuate and why are they often less than 100%?

There are several reasons why participations rates fluctuate. As you will see shortly, insurers often purchase options so that index gains can be credited to annuity contracts. However, the cost of options vary and as option prices increase, the insurer, conceptually, has less money to purchase “full participation” in index increases. Hence, the participation rates can fluctuate. Interest rates and confidence (often measured by market volatility) also affect participation rates.