Indexed Variable Annuities - Evolving Product Designs in the Annuity Market

With fixed indexed annuity sales hitting record levels, insurers are responding to demand by merging the best features of FIA (fixed indexed annuity) and VA (variable annuity) products to create a new range of hybrid designs. Referred to as “indexed variable annuities,” “structured note annuities,” or simply FIA/VA hybrids, these products combine indexed-linked crediting strategies with VA funds, creating an attractive solution for consumers looking to boost their retirement income.

Echoing developments in the variable annuity market, insurers are also offering guaranteed living benefit riders on fixed indexed annuity policies, as well as linking crediting strategies to managed volatility indices to produce so called “uncapped annuities.”

On Wednesday, June 25th featured speaker Alex Marion, Vice President of Product Management at Numerix, reviewed the new IVA product designs and discussed best practices for the risk management, and the hedging and reserving of these products.

These developments are proving popular to consumers; however, innovation seems to have outpaced regulatory guidelines. In addition to new hedging challenges for risk managers, the issue or reserving has become a pressing concern for insurers and regulators. While existing guidelines AG33 and AG35 prescribe statutory reserves for FIAs, the National Association of Insurance Commissioners (NAIC) is reviewing methodology as part of principle-based reserving (PBR).

Mr. Marion covered:

  • FIA market trends
  • FIA / VA hybrid product designs
  • Uncapped annuities
  • Risk management of guaranteed living benefit (GLB) riders
  • Statutory reserving challenges

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