BROOKLYN, N.Y. — A year ago, a common knock against variable annuities was that they had never been tested in a severe bear market.
Thanks to the current crisis, “we have certainly been through a test,” Frederick Crawford, chief financial officer of Lincoln National Corp., Radnor, Pa., said here today at an insurance industry conference organized by Standard & Poor’s, New York.
The session covered the cost of “variable annuity exuberance.”
Speakers at earlier S&P conference sessions talked about the need for insurers to reduce exposure to variable annuity benefit guarantees by increasing prices, simplifying the terms, and eliminating or changing the riskiest features.
During session on VA exuberance, VA defenders pointed out that, so far, contract holder behavior has been somewhat better for insurers than originally expected.
At Lincoln, Crawford said, withdrawals have held steady, and managers have found that VA holders have used relatively conservative asset allocations, despite access to benefits guarantees.
Careful attention to suitability may have helped, Crawford said.
When producers sell VA income guarantees to customers who really are looking for steady income, and VA withdrawal guarantees to customers who really want the peace of mind that comes with having access to their VA assets, that increases the odds that the guarantees will perform about as well as expected, Crawford said.
Meanwhile, “life events” are forcing some VA guarantee owners to drop contracts that are “in the money,” and holders who have started to use VA withdrawal guarantees are taking out less cash than they could, according to Kenneth Mungan, a principal at Milliman Inc., Seattle.
Despite the good news about VA holder behavior, guarantee exposure risk may be forcing some players out of the market.
“Organic” forces could reduce the number of VA issuers to 8, from 24 today, over the next 24 months, Michael Wells, chief operating officer of Jackson National Life Insurance Company, Lansing, Mich., predicted.