Assistant Vice President Rosemarie Mirabella in a recent edition of A.M. Best’s First Monday series discusses Variable Rate Annuities and the concerns over legacy blocks of business.

According to Ms. Mirabella A.M. Best’s concern is “primarily centered around the tail risk as it relates to the embedded richness of the guarantees, the equity market risk, interest rate risk and… policyholder utilization. Many of these products are reaching the point where they will get good historical experience and to see the level of utilization and whether or not the pricing assumptions and lapses initially made are realistic or not.”

Ms. Mirabella goes on to say, “Insurers have taken steps to mitigate possible concerns over a number of areas including an increase in rider fees, product redesigns, reducing the level of guarantees, repricing to reflect the lower interest rate environment, lapse assumptions and the changing of asset allocation strategies.   Companies have also changed their sales strategies to make sure that they are not taking on too much balance sheet risk. Finally carriers are offering policyholders incentives to surrender their policies. Companies are beginning to return to traditional sales models specifically to what is called “investment only” variable annuities which are products that have no guarantees.”

We’d like to thank A.M. Best for their contribution to our program.  If you’d like to see more of the First Monday Series, visit the A.M. Best website.

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