Industry Needs New Ideas For VAs, Says E&Y

Carey says, too, that VA carriers already are focused on the concerns raised by the E&Y outlook. "It would be a total shock if theyre ignoring this."

David Ingram, a consulting actuary in the New York office of Milliman USA, Seattle, also thinks the industry already has made risk adjustments.

"Carriers are trying to design products that have more manageable risk and have increased their charges for the guarantees they make," Ingram says.

Frank Sabatini, another E&Y actuary, says the demand for hedging is mostly accounting driven, due to concern about earnings. A hedge program gives the carrier an offsetting asset that will move in same direction as VA liabilities, he notes.

Another reason for hedging is that carriers havent been able to get reinsurance for about 3 years, which increases their exposure, Sabatini points out.

At any rate, hedging may not be an issue with consumers as much as it is with industry analysts and regulators. As far as increasing VA sales is concerned, Millimans Ingram believes the industry must keep VA products simple.

"I think the variable annuity industry needs to emphasize the fundamental strengths of the product rather than introduce bells and whistles," he says. "Its fundamental strength is as a retirement program in a box. Its one product that provides investment vehicles for retirement and an option to provide a life income model on annuitization. It can be a self-contained retirement program. It has no competition, really, because nothing else provides that package."

Reproduced from National Underwriter Edition, April 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.