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February 14, 2005 at 07:00 PM
Analysts at Moody’s Investors Service, New York, say they wish they knew more about the performance of variable annuities.[@@]
U.S. VA operating profits increased to almost $7 billion in 2003, up from a loss of $141 million in 2002, according to an annual U.S. life insurance industry outlook compiled by a team led by Laura Bazer.
Insurers also are giving a little more information about VA operations, Bazer’s team writes.
Nevertheless, “the transparency in financial reporting of VA profitability and risks (e.g., assumptions used by insurers to account for amortization of deferred acquisition costs) remains generally opaque,” the analysts write. “As a result, understanding an insurer’s true economic earnings and potential volatility of earnings going forward remains an arduous process.”
The improving stock market has improved VA unit performance, but it also has eased the pressure on insurers to provide more information, the analysts write.
The analysts note that some VA issuers are seeking help from outside advisors with setting up hedging programs in an effort to reduce the risk of offering death benefit guarantees, income guarantees and other guarantees.
