|By Fran Lysiak|
|A.M. Best Company, Inc.|
A majority subgroup of the
Because there are "life contingent pricing components" inside this product, the subgroup majority concluded they are best written through life insurers,
However, the subgroup also thinks these products "present risks that are akin to those in financial guaranty insurance" but nevertheless, a majority believed that property/casualty companies "should not be allowed to write them," he said, noting financial guaranty normally is written by property/casualty insurers.
The debate centered on whether these products are annuities or financial guaranty insurance—with the two biggest U.S. life insurers on opposite sides.
The industry, "except one company," has argued these are not financial guaranty but are life insurance products, Schirripa said.
The subgroup wants reserves and capital requirements "to be re-evaluated," Schirripa said, referring to Actuarial Guideline 43, which governs statutory reserve requirement for variable annuities and GLWBs.
The reserving guidance in AG 43 "is fairly broad and could easily be extended to products like [contingent deferred annuities]," he said, noting the subgroup is now seeing "potentially some risks akin to financial guaranty insurance," Schirripa said. The subgroup is suggesting that reserving requirements need to be looked by the regulators more carefully, he said. The subgroup no longer calls them "hybrid income annuities" but rather what the industry has been calling them—contingent deferred annuities, which are the stand-alone GLWBs on covered assets administered outside an insurance company; and, GLWBs that have been sold with traditional variable annuities for years, Schirripa said.
If the NAIC opens up AG 43, "billions in reserves" could possibly be at stake for all variable annuities with riders that are governed by this guideline, said
Companies that sell CDAs "want to reach buyers that would never consider buying a variable annuity," Schirripa said.
Schwartz said the debate surrounds contingent deferred annuities sold on non-VA or noninsurance products, such as mutual funds. Mutual funds can't sell lifetime guarantees, only life insurers can so a mutual fund company contracts with a life insurer to guarantee the funds. "What is that?" Schwartz said, noting the question is whether that's the same as a VA rider.
Schwartz said he thinks it's a financial guaranty product and the problem is that life insurers aren't regulated to sell that type of product. Financial guaranty insurance guarantees the payment performance of another party.
"Our position from an actuarial viewpoint is that contingent annuities are annuities, not financial guaranty products," said
"Our consistent view has been that contingent annuities are annuities under state law, so we view the subgroup’s determination as very positive," Covington said. "We are also encouraged by their intent to apply existing rules to CDAs in an ongoing way."
The subgroup was charged to address issues previously raised by the
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