Equity-based guarantee products (variable annuities, fixed indexed annuities etc.) in North America currently exceed a trillion dollars in deposits. Policyholder investment knowledge continues to increase and has led to a record level of innovative and complex investment-related products—and it is not showing any signs of slowing down especially in the current low rate environment. To remain competitive in this ever-changing investment product landscape, while retaining their market share, insurance companies need to stay abreast of evolving securities, accounting and tax regulations and policyholders’ risk appetites to develop new forms of guarantees. Given the intermingled risks underlying these products, many direct writers end up taking significant financial market-related risks without fully realizing the long-term impact of these risks on their balance sheet and shareholder value. As a consequence, insurance companies have cut back on existing guarantees and offer managed volatility funds as part of their risk-management strategies. Additionally, the solutions implemented by underwriters to manage these risks range from taking no action to reinsuring (if they can find a reinsurer at a price they can afford), depending on a myriad of influencing factors, including:
- Size of business;
- Cost of required infrastructure/resources;
- Nature of guarantees; Compensation of senior management; and
- How shareholders, analysts, rating agencies and regulators correlate the soundness of a company to its risk-management practice.
These factors are fueled by:
- Lack of market volatility;
- Strong equity markets across the board;
- Low persistent interest rates;
- Volatility in credit spreads;
- Absence of complete reinsurance for these products;
- Reported losses by some of the market players for running either a poor or no hedging program at all; and
- Change of securities/trading/accounting regulation.
Rave reviews from previous Equity-Based Insurance Guarantees Conferences show that a forum where practicing professionals can freely exchange ideas and discuss common issues is important. We invite you to attend to participate in an engaging learning environment where you can exchange ideas as they relate to the development of risk-measurement, risk-management, risk-monitoring ideas and tools.
Special Opportunity: Attend the pre-conference Bridging the Gap Seminar: Focus on Fixed-Indexed Annuities on Nov. 4 that is targeted for practitioners at all levels.