CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 23, 2005 12:00 AM (EST)
Following the recent negative publicity surrounding some annuity writers' market conduct and sales practices, A.M. Best Co. will be conducting a focused review on major equity-indexed annuity writers over the next several weeks that may result in some ratings outlook changes.
A.M. Best believes that some equity-indexed annuity writers may potentially suffer disruptions to their business models, resulting in reduced sales given the increasing due diligence demanded to comply with the prevailing heightened regulatory environment. In particular, A.M. Best is most concerned with companies that offer equity-indexed annuity products as the predominant line of business within their organizations.
A.M. Best recently discussed the risks of equity-indexed annuities in "Equity-Indexed Annuities - Risks Revisited," January 2005. One of the risks discussed was market conduct/regulatory risk, which, because of the complex product design, creates the potential for confusion among agents and consumers.
A.M. Best also notes that the equity-indexed annuity's nonregistered nature and the ease of channeling sales through existing distribution sources have facilitated the product's sales success in recent years despite its complex structure, potential market conduct issues and cutting-edge administrative requirements.
Equity-indexed annuity risks can be mitigated by active product management, especially where certain embedded options in the product design need close monitoring. While the significance of product design cannot be discounted, A.M. Best believes that equity-indexed annuity risk management must follow an integrated risk model that includes hedging, strong asset-liability management and active market-conduct and compliance programs.
Although the review will be focusing on all major equity-index annuity writers, A.M. Best does not expect all major equity index annuity writers to have their outlooks changed. Those companies that can demonstrate that they are not overly reliant on equity-index annuities will most likely not be impacted by a change in outlook. Among the factors A.M. Best will consider in its review are characteristics of the major products being offered and details on customer profiles of new annuity contract holders, plus details on the companies' internal management processes to ensure proper monitoring of sales practices.
For Best's Ratings, an overview of the rating process and rating methodologies, please visit Best's Rating Center.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.