Retirement income is key for future success for variable annuity issuers, according to the quarterly outlook from Ernst & Young's Actuarial Advisory Services practice.
"There will be winners and losers in the race to capture and retain the business of Boomers in their next lifestage," said Jack Ladley, an actuary in the actuary advisory services practice. "Firms that understand the coming change and take it on as an opportunity rather than a challenge will win the right to serve this massive, significant and demanding generation as well as the retirees that follow."
Carriers should also focus on the use of hedging for variable annuity guarantees and reinsurance credit risk. In an environment of near-absent reinsurance for the financial risk behind enhanced guarantees and more stringent regulatory requirements, hedging is important not only to deal with extreme market changes but also to cope with interest rate sensitivity and volatility.
With more reinsurers consolidating through mergers and acquisition and reinsurers increasingly suffering downgrades, carriers need to be mindful of adequate diversification in this area in order to manage their own credit risk.