The majority of variable annuity manufacturers are starting to use hedging programs to manage risks associated with benefits guarantees.
Analysts at Moody’s Investors Service, New York, have published that conclusion in a report on a survey of VA issuers.
The analysts also found that the immediate effect of the C-3, Phase II capital project adopted by the National Association of Insurance Commissioners, Kansas City, Mo., will depend heavily on the age of a company’s book of business and product guarantees.
The new C3, Phase II requirements, which took effect at the end of 2005, probably will encourage companies to deemphasize certain types of products and take other steps to create more stable returns, the Moody’s analysts predict.
Overall, C3-Phase II will have “only a modest impact on the majority of Moody’s rated U.S. life insurance companies selling variable annuity products, in a large part due to the phase-in process and the covariance benefit afforded by the [risk-based capital] formula,” the analysts write.