Perspectives: Weatherford Says Move Quickly on Speed-to-Market for Variable Annuity Industry

OLDWICK, N.J. November 16 (BestWire) -- With the U.S. life insurance industry revamping its stock market-linked variable annuity offerings, the chief of the Insured Retirement Institute says she hopes state regulators will move quickly on speed-to-market for this new wave of retirement-savings and income products.                                  

"I am seeing things from a different view than I did when I was with the  NAIC," said Catherine Weatherford, president and chief executive officer  of the IRI, a group that supports the importance of retirement planning,  including the growth and understanding of annuities.                     

Before joining IRI in September 2008, she served 12 years as the CEO and executive vice president of the National Association of Insurance Commissioners, the longest-serving chief executive of the regulatory group.                                                                    

With the Interstate Insurance Product Regulation Commission, for example, "we thought we were delivering speed to market," Weatherford said. But that doesn't have standards that meet the array of new features companies have developed over the past year, especially for variable annuities, she said.

As a result, companies are "still having to walk their products through regulatory approval on a 50-state basis," Weatherford said. "They are waiting a long time to get these new products approved." This is despite the fact that variable annuities in particular have been "de-risked and simplified," she said, referring to the various living benefit guarantees, generally offered as riders on the policies.                 

"I am very hopeful that the regulators will respond and help us get our products into the marketplace," said Weatherford, who recently met with BestWeek. "Americans are looking for safe, secure vehicles to put their money for their retirement savings and they are looking for safe and secure financial institutions and certainly, the insurance industry offers both."                                                            

In previous years, VA writers were competing to offer better withdrawal benefits for life, driving sales of variable annuities (BestWire, June 15, 2009).                                                               

But when the stock markets headed downhill, companies had to re-assess their offers. The guarantees of locked-in income were great for policyholders who had seen their contract values so rapidly decline.     

Did the industry take on too much risk with these guarantees? "None of us ever expected the meltdown that we had" and risks were exposed across the entire financial services industry, Weatherford said. But "robust" hedging programs used by many insurers worked very well. Other companies used different methods that may not have hedged as effectively, she said.                                                                    

Companies were forced to spend lot of capital to make sure these guarantees were fully reserved. "Our insurance executives may not have had a good night's sleep, but their policyholders were certainly sleeping soundly."                                                       

Insurers are working hard to make sure these benefits are appropriately priced, some keeping the VAs with the living-benefit guarantees, while others may scale back to a product that offers different types of riders and benefits, she said.                                                  

VAs will be more costly for consumers, she acknowledged, but they also have seen the benefits of these products "and all of us are willing to pay for something of high value."                                        

 In the second quarter, U.S. sales of variable annuities declined to $31.7 billion, a 24% decrease from the same period a year ago, according to IRI and Morningstar. Last year was dismal, with sales dropping 15.1% to $154.8 billion for these stock market-linked retirement savings and income products (BestWire, July 13, 2009).                                

To see the entire interview with Weatherford, go to http://www3.ambest.com/ambv/displaycontent/MediaArchive.aspx?PC=3008