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NEW YORK & CHICAGO--(BUSINESS WIRE)-- Fitch notes the newest product giving geared toward the longevity risk protection market, the contingent annuity (CA), is generating controversy. From a ratings perspective, we have a tendency to are involved with the last word risk profile of any CA product, pricing adequacy, queries of transparency, and the way the merchandise are going to be reserved for considering the extent of capital needed beneath regulatory capital ratios.

The marketplace for longevity risk protection is gigantic and growing rapidly, as underscored by an ongoing shift toward outlined contribution pension plans and baby boomers reaching retirement age.

To date, U.S. life insurers are actively selling variable annuities and different lifetime income annuities that defend against the chance of outliving one's assets. The CA product structures that are proposed would supply similar lifetime income profit guarantees however wouldn't need the policyholder to transfer the assets to the insurance company. we have a tendency to are conscious of solely a couple of U.S. life insurers that have really sold a CA sort product; but, an oversized range of insurers are wanting to doubtless enter this market given recent policy statements from the Treasury and Labor departments encouraging lifetime annuities.

We share key considerations voiced by U.S. life insurance firms, regulators, and trade cluster, together with the potential for mispricing that might cause vital monetary issues for the life insurance business down the road. as a result of investment guarantees embedded in variable annuity product, the business suffered material monetary losses within the 2008-2009 monetary crisis. we have a tendency to conjointly share considerations that the CA product giving may cannibalize sales of existing annuity product and can not essentially increase market share.

We don't portend any rating impact over the close to term related to the event of CA offerings and note that there has been little business written within the new product so far. Over the close to term, we'll be actively monitoring more developments associated with the CA market, together with forthcoming recommendations from the subgroup recently fashioned by the National Association of Insurance Commissioners (NAIC) to look at this market, and can discuss potential reserve and capital needs.
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Kellie Geressy-Nilsen, +1 212 908-9123
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Doug Meyer, +1 312 368-2061
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Source: Fitch Ratings