A.M. Best Comments on Potential Rating Outlook Changes for Major Equity-Indexed Annuity Writers.OLDWICK, N.J. -- Following the recent negative publicity surrounding some annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. writers' market conduct and sales practices, A.M. Best Co. will be conducting a focused review on major equity-indexed annuity equity-indexed annuity A contract with an insurance company that promises periodic payments keyed in a specified manner to a stock market index. Unlike variable annuities, equity-indexed annuities specify a guaranteed minimum return that is typically 3%. writers over the next several weeks that may result in some ratings outlook changes. A.M. Best believes that some equity-indexed annuity writers may potentially suffer disruptions to their business models, resulting in reduced sales given the increasing due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. demanded to comply with the prevailing heightened regulatory environment. In particular, A.M. Best is most concerned with companies that offer equity-indexed annuity products as the predominant pre·dom·i·nant adj. 1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant. 2. line of business within their organizations. A.M. Best recently discussed the risks of equity-indexed annuities in "Equity-Indexed Annuities - Risks Revisited," January 2005. One of the risks discussed was market conduct/regulatory risk, which, because of the complex product design, creates the potential for confusion among agents and consumers. A.M. Best also notes that the equity-indexed annuity's nonregistered nature and the ease of channeling sales through existing distribution sources have facilitated the product's sales success in recent years despite its complex structure, potential market conduct issues and cutting-edge administrative requirements. Equity-indexed annuity risks can be mitigated mit·i·gate v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates v.tr. To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve. v.intr. To become milder. by active product management, especially where certain embedded options Embedded Option An option that is an inseparable part of another instrument. Compare this to a normal (or bare) option, which trades separately from the underlying security. Notes: A common embedded option is the call provision in most corporate bonds. in the product design need close monitoring. While the significance of product design cannot be discounted, A.M. Best believes that equity-indexed annuity risk management must follow an integrated risk model that includes hedging, strong asset-liability management and active market-conduct and compliance programs. Although the review will be focusing on all major equity-index annuity writers, A.M. Best does not expect all major equity index annuity writers to have their outlooks changed. Those companies that can demonstrate that they are not overly reliant on equity-index annuities will most likely not be impacted by a change in outlook. Among the factors A.M. Best will consider in its review are characteristics of the major products being offered and details on customer profiles of new annuity contract Annuity Contract The written agreement between an insurance company and a customer outlining each party's obligations in an annuity coverage agreement. This document will include the specific details of the contract, such as the structure of the annuity (variable or fixed), any holders, plus details on the companies' internal management processes to ensure proper monitoring of sales practices. For Best's Ratings Best's rating A rating A.M. Best Co. assigns to insurance companies based on the company's ability to meet its obligations to its policyholders. , an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com. |
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