Proposed revisions to the statutory framework for variable annuities (VAs) would be a positive change, according to a new report from international ratings agency, Fitch Ratings.
The planned changes are designed to reduce non-economic volatility and to reduce, or even eliminate, the use of captives, promote sound risk management, and improve disclosure.
The report suggested that, given the complexity and lack of transparency of arrangements between VAs and captive insurers, Fitch would consider the changes a ‘credit positive’.
Douglas Meyer, managing director at Fitch Ratings said: “Both insurers and investors should benefit from these proposed changes to VAs.”
He explained: “The current statutory framework has contributed to the inherent volatility and pro-cyclic nature of the VA business due to the unstable interplay between statutory reserve and capital requirements, and has been a primary driver of the industry’s use of captive reinsurance.”
The VA changes are expected to apply to new and existing business, and could come into effect by as early as 1 January 2018.
