Insurers look to reduce risk

Insurers are eager to continue developing products in the variable annuity arena — with the search for ways to reduce risk as a top priority. The spike in volatility over the course of the last year has hurt investors and carriers, so both will carry memories of the crisis once the situation normalizes, said Tamiko Toland, editor of Annuity Insight, the variable annuity research service in New York. She spoke on a panel, “Hybrid Innovations: Transitioning from Accumulation to Income Distribution by Effectively Bridging Product Silos,” at the Managing Retirement Income Conference in Boston yesterday. As a result of this recent volatility, carriers are now more aware of the risk that offsetting investments in a hedging strategy can become correlated. In addition, because their capital is constrained, insurers must rethink ways to approach variable annuities, which are capital-intensive products, Ms. Toland said. In terms of new concepts, carriers will search for ways to approach the underlying investments, including the increased use of index funds and exchange traded funds within variable annuities and other products. But new developments are useless if there is no guidance and advice to support investors. “We understand the value of the individual products, and they’re fascinating, but that’s not the point,” Ms. Toland said. “We need to avoid ending up with so many different components that people just get confused.” On the 401(k) side, experts said they expected product development to remain stable, centering on approaches that already exist, including group variable annuities and guaranteed lifetime withdrawal benefits, said Fred Conley, president of the institutional retirement group at Genworth Financial Inc. of Richmond, Va. He thinks advisers will play a role in getting more plan sponsors interested in considering these benefits. “Firms say they need to evaluate carriers and feel like they need to go deeper than Standard & Poor’s and Moody’s [Investors Service, both of New York],” said Mr. Conley, who was also a panelist. “The due diligence will be critical for gaining comfort, and these are fiduciary decisions.”