Life insurers are being more careful about taking on variable annuity (VA) risk, but the generous guarantees they sold in the past remain a threat, a rating agency says.
Moody’s Investors Service Inc., New York, has taken a look at VA risk in an analysis of 2009 year-end financial information from the 20 largest VA writers.
The analysts who conducted the study tried to predict the impact of a 30% drop in stock prices on each insurer’s risk-based capital ratio.
The analysts also looked at the possible effects of stress scenarios on insurers’ capital financial resources and the insurers’ total exposure to VA risk.
Moody’s notes that its analysts create adjusted RBC ratio figures to gauge the possible effects of unusually harsh conditions on capital adequacy.
Adjusted RBC ratios increased at half of the insurers studied, but that result is misleading, the Moody’s analysts conclude.