The Geneva Association has published a report, Variable Annuities—An Analysis of Financial Stability, that examines the current characteristics and management of variable annuities and their potential for systemic risk.
The report's findings include:
- variable annuities are carefully regulated products;
- even if they appear more complex, variable annuity products entail the same risk factors as other life and savings products and are carefully managed to reduce risk exposures;
- variable annuity writers use derivatives for risk management purposes(hedging), not to speculate, and derivatives are actively managed through dedicated hedging programmes and teams;
- insurers’ use of derivatives represents a fraction of overall derivative markets;
- the use of derivatives for ALM purposes reduces systemic risk and supports the solvency of insurers; and
- diversification exists within and across variable annuity portfolios and other life and savings’ business lines.
Secretary General of The Geneva Association, John H. Fitzpatrick comments “Variable annuities fulfil a compelling social need by providing a rapidly ageing global population with a product that delivers certainty of income in retirement. Well managed, variable annuities alleviate the risk for millions of individuals worldwide to outlive their assets in retirement. Our research shows that in their current form they are resilient during financial downturns and do not have characteristics that threaten financial stability.”
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