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May 17, 2007 at 01:23 PM
Regulators in the New York State Insurance Department Life Bureau emphasize their concerns about variable annuity benefits guarantees in the department superintendent’s latest annual report.
“Several insurers have approached the department with product concepts that would wrap mutual funds with similar guarantees,” bureau officials write in the report’s Life Bureau section.
Few life insurers had to make good on VA living benefits guarantees after the 2001 market downturn, because most of the guarantees that were in place were still in the middle of a waiting period, bureau officials write.
Because stocks have been doing well since 2001, “companies selling these [guarantee] products have been reporting high profits, which has created incentives to increase their share of the market in this area,” officials write.
“Due to the lack of availability of reinsurance for these products and the high cost to hedge these risks in the capital markets using options, most insurers have turned to dynamic hedging programs,” officials write. “The department is concerned that such programs may not work as planned under severe market conditions.”
The Life Bureau may develop new guidance for insurers that want to get VA living benefits approved using the New York department’s certified form approval process, officials write.
In another part of the Life Bureau’s section of the New York department annual report, bureau officials talk about their participation in efforts by the National Association of Insurance Commissioners, Kansas City, Mo., to shift toward flexible, “principles-based” methods for establishing standards for reserves and capital.
