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August 04, 2002 at 08:00 PM
In Wake Of Market Decline, Insurers Advised To Assess Warning Systems
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The equivalent of a fire drill was rung last month for equity-linked insurance products when the stock market sank. Now, regulators and rating agencies are saying it is a chance for everyone in the industry to assess warning systems.
Larry Gorski, chief actuary with the Illinois insurance department, says companies offering guarantees can evaluate hedging programs. Insurers selling equity indexed annuity products–often smaller companies–should also check for proper hedging, he adds.
The need may increase as guarantees proliferate. For instance, LIMRA International, Hartford, Conn., says that in the past two years, many companies have begun offering earnings-related death benefits, a feature in which a predetermined percentage of the investment gains is added to the sum the beneficiary receives upon the annuitants death.
Regulators should also test to see if hedging is effective and proper disclosure is being made, Gorski continues.
So, for instance, in Illinois, companies explain to consumers the difference between the guaranteed annuitization rate and the current annuity rate in a guaranteed minimum income benefit, he says.
The New York insurance department says it monitors both guaranteed minimum death benefits and GMIBs and intends to send out a second survey on the matter shortly. It did a survey last year, the results of which have not been made public, the department says.
Julie Burke, managing director with Fitch Ratings, Chicago, says that given the market impact on variable products, “I think there are a lot of VA companies that will be making some increase in reserves this quarter. Second quarter will be a tough quarter.”
