Current VA reserve and capital requirements challenging L/A insurers
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<publisher>A.M. Best Company</publisher>
<dateIssued>2018</dateIssued>
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<abstract displayLabel="Summary">Current statutory reserve and capital requirements for variable annuities (VAs) with minimum guaranteed benefits have challenged L/A insurers' abilities to effectively manage risks associated with such guarantees. Misaligned elements of the reserves required under Actuarial Guideline 43 (AG43) and the capital requirements of C3-Phase 2 have resulted in non-economic volatility, leading VA writers to reinsure business to affiliated captives. These captives have also been used to align market risks with hedge programs, as the current framework may produce counterintuitive results. Efforts are under way by the National Associations of Insurance Commissioners (NAIC) to modify reserve and capital requirements so that non-economic volatility is diminished, possibly eliminating the need for reinsurance to captives.</abstract>
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