Life Insurers Facing Interest Rate Dilemma

A sharp drop in the stock market in 2002 impacted features in variable annuities such as guaranteed minimum death benefits and guaranteed minimum income benefits.

Of particular concern are GMDBs associated with ratchet VA products, Puccia said.

Even if the equity market calms and VA sales rebound, consumers could see changes in the VA choices offered.

For instance, Nationwide Financial on May 1 was going to remove guaranteed minimum income benefit features from its VA products, Mark Thresher, senior vice president and CFO, told attendees at the meeting.

Additionally, he said, the company will be examining the guaranteed minimum death benefit feature in its products as a result of the “current state of the reinsurance market.”

Reinsuring VA guarantees such as GMDBs and GMIBs has become very expensive in the last year. (See NU, Feb. 17.)

But, Thresher said there are signs the VA market is rebounding. As evidence of this trend, he noted that Nationwide Financials first quarter 2003 results included $1.4 billion in VA sales.

In first quarter 2002, VA sales totaled $1.196 billion.

In fact, he continued, Nationwide is planning a marketing campaign promoting the fact that “people are investing in VAs again.” The campaign, Thresher explained, asks the question, “Do you want to be in fixed annuities as the market starts to perform better?”

Reproduced from National Underwriter Edition, May 12, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.