Fitch Discusses VA Market

==increases in capital requirements are "manageable" because of the strong capitalization of these VA writers;

==Fitch will give credit to a company's hedging programs based on factors such as the programs' sophistication and length of time in operation;

==the range of programs Fitch is seeing varies from the very sophisticated to ones that use deep out of the money puts that are reviewed once or twice a year in a more static approach;

==greater awareness of the volatility of guarantees is causing some companies to raise prices while others are lowering prices;

==coming out of the bear market, some companies are introducing products that "eliminate certain adverse policyholder behavior" with new product features, and consequently, enable them to charge lower prices that are commensurate with risk.

==a balance between hedging and over hedging needs to be reached because over hedging can eliminate upside profit potential.

As explained by Patrino, the Fitch model looks at factors including the guarantee type, asset mix, the age of the business and the policyholders' age. The new model can tie capital requirements to rating calibration points, he adds.

It also creates an more economic examination of a company's risks, reflecting changes in the equities market rather than a linear static look, Patrino said.

'An increase in capital requirements is manageable and no immediate downgrades are likely'

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