Reinsurance for variable annuities with guarantees continues to be scarce and costly.[@@]

That’s the assessment of David Hopewell, a senior actuarial advisor in the Philadelphia office of Ernst & Young.

Many insurers are relying on in-house hedging programs, but setting up a VA hedging program is costly, and only insurers with large VA operations can afford the programs, Hopewell says.

There seem to be about 2 insurers taking hedging programs in-house for every insurer continuing to rely on outside reinsurance arrangements, Hopewell says.

Reinsurance for variable annuities with living benefits has been scarce for more than 2 years, ever since the stock market fell and put many of the living benefit provisions in the money.

Although the investment markets have recovered, the rebound in the VA reinsurance market has not kept pace with the rebound in the investment markets, Hopewell says.