While Fitch views positively the presence of an active reinsurance market for VA risk, it is unclear how much of an impact this will have on the risk profile of VA writers. It could result in a reduction in the industry's exposure to VA risk or, conversely, it could simply allow insurers to sell more VAs than they otherwise would. Fitch expects the ultimate answer to lie somewhere between the two extremes.
The VA reinsurance market has been very volatile in terms of supply. It was very active in the 1990s but virtually dried up following the equity market correction in 2000-2002. After reinsurers re-entered the market in 2006-2007, it dried up once again following the equity market correction in 2008-2009.
Fitch has seen an increase in reinsurance transactions involving variable annuity risk. CIGNA, previously a reinsurer of variable annuity risk, entered into a reinsurance transaction in
Fitch believes that more VA writers are exploring potential opportunities to cede a portion of the risk associated with their VA guarantees, but no other significant announcements of such treaties have yet emerged.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Bradley Ellis, +1 312-368-2089
Kellie Geressy-Nilsen, +1-212-908-9123
Source: Fitch Ratings
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