Variable annuities instead of conventional pension annuities
Variable annuities. Are they the answer-a genuine alternative to the good old conventional pension annuity? Are they the solution to end all at retirement solutions, the key to future profits…or a liability that could threaten the stability of life offices in choppy markets?
An annuity story from America. Credit analysts Fitch Ratings said that last month Old Mutual had to plough up to $70 million into capital reserves to cover unexpected costs across its US variable annuity product.
Analyst Harish Gohil said that the capital reserve bill is likely to have arisen from the insurer’s failure to predict the risks associated with guaranteeing the income of its variable annuity customers. It would appear that annuity providers have to be careful with this product.
UK insurers including Aegon and Standard Life are eager to grab a piece of the third way pie but mispricing the cost of the guarantees associated with these products throw up unwanted bills that could shake the foundations of UK and US insurers alike.
Is it a risk worth taking?
