Life insurance and annuity reserves differ in terms of the risks taken and assumptions made by insurers with both types of products.
Life Insurance & Fixed Annuities
Life insurance and most fixed annuity products are mortality-based. Life insurance premiums and reserves are based on the assumption that future premiums will be paid, and determined using standard mortality tables. But insurers underwrite these policies to protect against economic loss if an insured dies early. Thus, statutory reserves for those products are typically higher than for most annuities.
Variable Annuities
Variable annuities are asset-based investment products for building wealth and providing retirement benefits – though many now offer guaranteed income and death benefits. Actuaries use annuity mortality tables to calculate annuity premiums and reserves. Annuity mortality tables usually project lower rates of mortality than do mortality tables used for life insurance, and statutory reserves for annuities are typically lower than those for life insurance. However, variable annuities are not underwritten, so the liability assumed with these products is beyond the company's control, as is the performance of the underlying investments. Both can affect the profitability and marketability of variable annuities.
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