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IRI: VA Issuers Prefer to Keep Guarantees

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U.S. insurers would rather hedge variable annuity (VA) living benefits guarantees, or charge more for the guarantees, than to eliminate the guarantees altogether.

Researchers at the Insured Retirement Institute (IRI), Washington, and Cerulli Associates Inc., Boston, have published that finding in a summary of results from a survey of asset managers and insurers.

Researchers asked participants from insurance companies to rate a variety of VA living benefits risk management strategies on a 5-point scale, with 0 points going to the least-used strategies and 5 points going to the most frequently used strategies.

Running a formal hedging program was the most popular strategy, with a 3.6 rating.

Increasing charges for guarantees and adding investment allocation requirements tied for second, with a 2.6 rating.

Eliminating guarantee riders altogether had an average rating of 1.9 for buyers of new annuities and 1.8 for holders of existing contracts.

The least popular strategy the researchers mentioned was “lengthening or adding a waiting period for living benefits.” That strategy received an average rating of just 1.1

- Allison Bell

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