These incentives have the most value to contract holders in low-interest-rate environments and after a fall-off in equity markets, but they can put considerable pressure on a company's reserves and surplus. What's more, policies with benefit guarantees pay advisers high commissions in the early years, which has spurred on GMDBR and GMIB variable annuity sales and created further exposure for insurers.
As a result, benefit guarantees and bonus interest options may lead insurers to limit the sale of annuities in an uncertain economy, since a market downturn could restrict a company's ability to cover its liabilities under its annuity contracts, and produce a severe strain on its surplus capital. Thus, companies must evaluate potential annuity products with that in mind.
Depending on its financial strength, the issuing company may limit annuity sales volume so that in a worst-case economic scenario, the company's capital and surplus won't drop under applicable statutory minimums.
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