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ARTICLE · 07 FEBRUARY 2013

Insurance Companies Take Steps To Reduce Their Risks Under Guarantees In Outstanding Variable Contracts

Drinker Biddle & Reath LLP
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An insurer that wishes to take steps to reduce the risks of the lifetime income guarantees under its outstanding variable annuity contracts should consider whether its proposed course of action is permissible under the terms of the contracts, the impact of disclosures in its existing prospectuses, the new disclosures that will be required and the suitability and other compliance issues that may arise under the federal securities laws.

United StatesInsurance
Bruce Dunne
Bruce Dunne

The 2008-2009 financial crisis, ongoing market volatility and persistently low interest rates have significantly increased the risks and costs to insurance companies of the lifetime income guarantee provisions in their variable annuity contracts. Insurance companies have responded in a number of ways. Some have exited the variable annuity market altogether. Others have redesigned the products they offer by reducing guarantee rates, increasing fees, limiting available investment options and/or tightening asset allocation programs.

A few have taken steps recently to reduce their risks under outstanding contracts by:

  • refusing to accept additional purchase payments from existing contract holders;1

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