The Wall Street Journal reports on the race among insurers to sell variable annunities to Boomers as they begin to move assets out of stocks and other asset groups. Annuities have a tarnished history due to unethical marketing in the past by some companies. Major insurers are hoping to set that right with new product offerings that will appeal to the massive number of Boomers heading into retirement. This time around, insurers themselves face the bigger risk, as annuities carry guarantees of lifetime payment. The key question, of course: how long will Boomers live? Insurance companies are trying to do their actuarial homework:

AXA is making one of the biggest pushes around the globe into variable annuities, highlighting the promises and pitfalls of the market. It has “risk labs” in New York and Paris trying to predict what the future holds for longevity and financial markets. Could a surprise medical breakthrough — a cure for cancer, for instance — wreak havoc on the company’s longevity models? Average life spans have been rising for years in the U.S. and Europe. In Japan, more than 28,000 people are now older than 100. “Longevity is a difficult risk to price,” says Simon Harris, who heads a group of European insurance analysts for Moody’s Investors Service in London. “Unlike pricing a motor-insurance policy, where the risks are pretty well understood and you can reprice each year, with longevity, you have to put a price today on risks that will emerge many years into the future.”

According to Investment News, annuities’ lifetime guarantee could be too risky for insurers if Boomers outlive the projections and if the stock market heads south–making it difficult for providers to earn sufficient income to support payments.

This entry was posted on Sunday, June 17th, 2007 at 11:14 am and is filed under Financial Markets, Financial Services, Marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.