Improved profitability and better management in areas such as credit quality of investments will be increasingly important for insurers going forward, according to industry discussions and reports during 2003.
“What will [life insurers] need to make money?” was a question raised during a discussion among insurers.
National Underwriter posed the question to analysts.
Scale will be increasingly important, according to Andrew Kligerman, a senior life insurance analyst with UBS, New York. “We live in a world where scale is important and it is harder to make money without scale.” Scale also smooths out volatility, he adds.
Hedging risks created by guarantees in variable annuities also will be important, Kligerman continues.
Another long-time industry observer concurs that guarantees are helping to sell VAs and companies better have a good handle on “what they are promising, how they are delivering that promise and whether they are charging the right amount.”
In order to do that, it is necessary to properly hedge and understand pricing associated with hedging, the observer adds.
Going forward, payout products will be needed, according to this observer.
The recent trend toward more rational pricing of VAs will become even more important as the product becomes a commodity, according to Kevin Ahern, a credit analyst with Standard & Poors Corp., New York.
One of the ways to understand a companys risk is to understand the products that it offers and the optionality within those products, says Julie Burke, a managing director in Fitch Ratings Chicago office.
And the best way to do that, she continues, is to review actuarial memorandums filed with state insurance departments.
But, according to Burke, that resource is not readily available to many. So, she adds, it is disappointing that there is not more disclosure and that there is not more information provided in 10Ks and 10Qs.