Finding ways to back variable annuity guarantees represents a promising but challenging opportunity for life reinsurers.
Insurance industry experts gave that assessment here during a panel discussion at a recent insurance conference organized by Standard & Poor’s, New York.
Many consumers and retirement advisors see VA contracts with guarantees as ideal retirement saving and income planning vehicles.
But the nature of the guarantees is such that, “when bad things happen, they happen really quickly,” said Paul Rutledge III, president of Transamerica Reinsurance, Charlotte, N.C.
Backing VA guarantees is a radical change from reinsuring traditional mortality coverage, said Michael Pado, president of XL Re Life America, Stamford, Conn.
When backing VA guarantees, reinsurers must forecast VA holder behavior as well as VA holder mortality, Pado said.
Accommodating that mix of investment risk with mortality risk will require the participation both of reinsurers and of the capital markets, Pado predicted.
One key is that the reinsurer and the direct writer need to act as partners, so that the reinsurer has more control over guarantee pricing, the panelists agreed.