Moody’s: Good if Cigna can unload VA death benefit

Selling off the business would enhance Cigna's overall credit standing due to the removal of a liability that is subject to volatile returns and risk, Zaharuk stated in his analysis. However, the benefits would have to be weighed against the costs and terms of any potential deal. "Owing to the nature of this business, we expect Cigna would have to pay someone to assume this business," he wrote.

As of Sept. 30, Cigna reported death benefit coverage equal to the amount payable if all of the approximately 445,000 in-force contract-holders submitted death claims of roughly $4.2 billion. At the same time, Cigna held reserves for future policy benefits for those contracts of about $1.1 billion, detailed Zaharuk.

It's no surprise that a carrier that insures variable annuities has sought ways to lessen the liabilities of those contracts either through hedging strategies or restructuring the policies. In recent months, several variable annuity insurers have proposed voluntary buyouts of either death benefits or guaranteed lifetime income riders in an exchange for a higher account balance. The moves are seen as a way to lessen the risks associated with such long-term benefits in a low interest rate environment. Companies like Hartford and Sun Life have exited the VA business altogether.

See also:

• Annuities: 5 things to expect in 2013
• Extreme makeover: Variable annuity edition
• "Complex" products risky to insurers, too