The variable annuity market is currently facing a number of challenges, and carriers are adjusting to the changes. According to a recent report from Celent, variable annuities products are particularly vulnerable to a combination of increasing competition from elsewhere in the financial services industry, and a historically low level of interest rates.
The report, “Wealth Management Opportunities in the European Life Insurance Industry: A Focus on Protection Product,” says with the high turbulence experienced by financial markets in 2008 and 2009, insurers with variable annuity books have realized that their hedging programs did not provide the level of protection that many had expected. In addition, the high volatility of financial markets increases the cost of hedging, making variable annuities more difficult to sell even to high-net-worth clients. The report also states that in order to thrive in this evolving marketplace, insurers will need to rethink their product portfolio strategy and to improve operational efficiency.
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