An insurer's profit from annuity contracts is the difference between what the company earns on its investments and what is eventually paid to contract owners in guaranteed credited interest and death benefits. Economic conditions and the competitiveness of an annuity contract's benefit guarantees can limit or enhance an insurer's interest in or ability to sell annuity products. If investment performance of the underlying investments falls short of expectations, the insurer's profits suffer.
With life insurance, issuers know the total premiums they can expect to receive from each policy, as well as the mortality risks they assume by paying guaranteed death benefits (an insured could die the day after paying the first and only premium, for instance). However, as noted, companies underwrite life insurance policies (assessing and classifying the degree of risk for each insured), and develop the reserves that guarantee money will be available to cover insured losses, whenever they occur. In doing so, companies protect their investment returns and profit margins.
However, establishing reserves for variable annuity products is often a best-guess proposition. Since variable annuities are not underwritten, the liability assumed with these asset-based products is beyond the company's control. This is especially true in variable annuity products offering guaranteed death benefits and guaranteed income benefits, but it also applies to companies selling deferred fixed annuities with bonus interest options.
Back to Top |
Next
Ohio National is not affiliated with, nor does it endorse or sponsor, any particular prospecting, marketing or selling system.
