Offers Details On New Stochastic Fitch Model
Fitch Ratings detailed its new stochastic model to analyze VA capital requirements and discussed the shift in how risks associated with variable annuities with guarantees are being handled by both regulators and companies during a teleconference on Aug. 4.
The size of the variable annuity market was estimated to be $1.1 trillion in assets in first quarter 2005, according to VARDS, a unit of Morningstar, Inc., Chicago.
The rating agency applauded the likely implementation of new capital requirements for VA s with guarantees that the National Association of Insurance Commissioners, Kansas City, Mo., could adopt at its fall meeting in New Orleans next month.
In June, the NAIC’s C-3, Phase II project was advanced by the NAIC’s Financial Conditions “E” Committee. It will be reviewed by the NAIC’s executive committee and possibly by the NAIC plenary before full adoption. If fully approved, the new requirements would take effect at year-end 2005.
A related reserving project using many elements of the C-3, Phase II project is also currently underway.
During a discussion on the changes underway and the Fitch stochastic model, Fitch analysts Jeff Mohrenweiser, Peter Patrino and Doug Meyer offered some of the following incites:
==by some industry estimates, there are over 600 product variations;
==the new Fitch model and the changes underway would result in no immediate downgrade of issuers of VA s with guarantees;