When a fixed-rate annuity is purchased, the insurance company creates reserves it can use for settling withdrawals, redemptions, and losses. Insurance company reserves cannot be used to pay claims, overhead, bad debts, or any other costs unrelated to the annuity.
Annuity business is generally a modest revenue source for most insurers. So companies accumulate annuity reserves using funds from other profit centers, typically, their life insurance business.
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