Its not news to insurers that the economic turmoil of 2008 has caused significant changes in the way they do business. It has changed the strategic landscape for individual annuity insurers, according to Conning Research & Consulting. Some observers see in this new landscape the potential demise of the variable annuity. A broader view may be that in times of turmoil, those companies that understand and adapt their business model to a new strategic landscape will find themselves better positioned for success, according to a new study by Conning.
"As the economy stabilizes and improves, insurers will confront significant challenges to the business model they have developed over the past few decades," says Scott Hawkins, analyst at Conning Research & Consulting. "However, insurers face these challenges in a weakened financial position. Rebuilding that financial position, and implementing changes to avoid a repeat of the capital destruction of 2008, will be a key focus for insurers."
The Conning Research study, "Rethinking Individual Annuities: Key Challenges to Strategic Success," identifies the changes in market demand, structure and risk facing individual annuity insurers, and reviews early indications of market adjustments and insurer responses as well as likely future changes.
"After the recession of 2000-2002 the individual annuity market consolidated, globalized and created product guarantees to respond to high-net worth clients' heightened concerns over principal protection for high-growth variable annuity products," says Stephan Christiansen, director of research at Conning. "The resulting heightened risk profile left insurers vulnerable to the current severe market downturn. After capital raising activities in 2008 by many of these insurers, they must now plot a course forward and deal with the new realities of the market. We believe that capital strengthening will and must continue, but also that insurers will need to rethink their product risk, distribution, asset management functions and cost structures in this new, and likely consolidating, environment."
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