NU Online News Service, Nov. 7, 2003, 10:57 a.m. EST – Nearly one-third of chief financial officers at U.S. life insurance companies say their companies might limit sales of some life insurance and annuity product guarantees in the next six to 12 months, according to results of an informal survey by Tillinghast-Towers Perrin, New York.

Researchers at the actuarial consulting firm are basing their conclusions on completed questionnaires from 26 life insurance company CFOs.

The researchers found that the participating CFOs believe features such as guaranteed annuity death benefits and universal life no-lapse guarantees help their companies compete for business.

The share of participating CFOs who gave high importance ratings to minimum guaranteed interest rates on variable annuity fixed accounts was only 31%, and the share was only 37% for minimum guaranteed interest rates on universal life policies. But 55% of the CFOs gave high importance ratings to minimum guaranteed interest rates on fixed annuities, and 65% gave high importance ratings to UL no-lapse guarantees.

Seventy-five percent of the CFOs agreed that variable annuity guaranteed living benefits are extremely or very important, and 83% said VA guaranteed death benefits are extremely or very important.

Adding rich VA living benefit guarantees has helped big insurers win market share away from smaller insurers this year, according to Hubert Mueller, a Tillinghast consultant.

But the authors of the survey report note that, although insurers have been using reinsurance to back UL product guarantees, most have been issuing the VA living benefits guarantees without reinsurance cover. Eighty-eight percent of the participating CFOs worry about the cost of reinsurance, and 53% worry about lack of current reinsurance capacity.

Because of problems with getting adequate reinsurance, some insurers are studying the possibility of using hedging strategies, offshore entities or securitization to reduce the amount of capital needed to back the guarantees, Tillinghast researchers report.

Thirty-two percent of the participating CFOs said their companies were responding to capital constraints and concerns about risk exposure by making plans to limit sales of some product guarantees in the near future. Eighty-four percent said their companies were revising product designs and product guarantees.

Fifty-three percent said their companies were thinking about changing product pricing, and sixty-three percent said their companies were adopting more extensive scenario testing.