CARRIERS HOPE CAPTIVE ADVISORS WILL REDUCE VA RISK value at a guaranteed rate after a waiting period. Of the three companies, Jackson, which has increased prices and reduced its living benefits, has the most “aggressive product,” Moody’s said. Jackson contract holders are authorized to allocate 100 percent of their VA assets to stocks, a volatile asset class. In addition, the lack of restrictions on policyholder investment allocations makes the Jackson VA portfolio more “challenging to hedge,” according to Moody’s. Jackson is selling “the least de-risked” product, and Moody’s maintains a financial strength rating of A1 on Jackson. Jackson has a total variable annuity account value of $106 billion. Prudential, which also has a financial strength rating of A-1, reported about $119 billion of VA account values. MetLife, with a higher financial strength rating of Aa3, had total contract account values of $138.6 billion, Moody’s said.
$48
BILLION estimated VA sales by captive agencies in 2013 As VA underwriters have spent the past two or three years reducing guarantees and raising rates, the companies depends on hedging to meet the obligations of their in-force blocks of VAs. New VA sales reached $141.2 billion in 2013, down slightly from $143.3 billion in 2012, Morningstar reported. Even with slowing sales and lower risk exposures compared with older versions of VAs sold before the financial crisis, “we do not expect the issue of exposure to variable annuities to dissipate as a credit
FINANCIAL
concern any time soon,” Moody’s analysts Scott Robinson and Min Son wrote. If VA portfolios have raised a few eyebrows among credit analysts, are they still a good deal for retirees and pre-retirees when bank savings accounts are paying next to nothing in interest? “If you buy an annuity with lifetime benefits but die the next year, it’s not a good deal because you weren’t able to use the product features,” Levine said. “But with regard to a VA with guarantees, the real risk is a huge dive by the market and outliving payments based upon your account value.” Contracts bought in 2008 with generous guarantees would typically still be in place, he said. Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.
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May 2014 » InsuranceNewsNet Magazine
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