Variable annuities
Life annuity (Engl. Variable annuities ) is the name for a particular form of unit-linked pension insurance against one-time payment or recurring premium payments with a guaranteed minimum benefit. These contracts differ from older forms of unit-linked pension insurance with a guarantee (e.g. a guarantee that at least the sum of the contributions will be paid) in that they have higher guarantees that are calculated separately by the insurer and are often hedged with derivatives . In addition to a pension payment, these contracts can guarantee further benefits, for example payments in the event of death.
overview
The capital investment in the form of the fund and the "guarantee generation" are basically carried out separately from each other. In contrast to other forms of private pension insurance with guarantees, an explicit guarantee fee shows which costs are taken from the respective contract for the guarantee promises made. As a rule, the capital is invested in one or more funds.
Variable annuities are relatively new insurance products that are already established in the USA and Japan and that have also been offered to the European and German markets in recent years. In Japan, the insured sum of these contracts in 2007 was $ 80 billion.
Guarantees
While conventional annuity insurances with profit participation do not give the customer any influence on the investment policy, with unit-linked annuity insurances the customer can control the asset allocation to a certain extent via the fund selection. In return, the insurer does not guarantee a minimum pension or a certain capital payment. In the case of pension insurance in particular, however, the reliable expectation of a certain amount of pension, for example, is an essential decision criterion for the customer.
For this reason, unit-linked products with premium guarantees (two-pot hybrids) were brought onto the market in Germany at the end of the 1990s, which represented the guarantee promise of a conventional capital investment covering the actuarial reserve or an investment in guarantee funds. However, these guarantee funds were associated with a significant loss of return. With the reduction in the actuarial interest rate for the conventional actuarial reserve to 1.25% since 2015, which has been ongoing for years, there have been significant problems with the cash lock.
Cash lock means the following: If the investor buys the fund with a high guarantee level and the prices subsequently fall, the fund must remain invested in risk-free investments at the expense of performance in order to be able to maintain the guarantee level. This reduces the incentive for new customers to subscribe to this fund, as it practically only pays off like conventional capital investments from a life insurer.
The dynamic three-pot hydrides have recently been developed as a further development. These map the guarantee using a special (i) CPPI mechanism on a contract-specific level. For this purpose, money is shifted back and forth between conventional capital investments, guarantee funds and a relatively free choice of funds, following a mathematical model. At each point in time of the contract, the guarantee is presented either via the guarantee fund or the conventional capital investment. Only when the present value of the guarantees has been secured can a further investment in fund investments be made.
In the case of these products, the costs for the guarantees are not explicitly stated, but are implicitly charged. The effect of the implicit costs can be quantified by a stochastic analysis as a loss of return.
In 2006 variable annuities (VA) were introduced in Germany for the first time. In contrast to the previous products, the guarantee is no longer brought about by “pots” with secure assets. Instead, the necessary guarantees are ensured by means of a corresponding hedging process. The special feature is that the products are designed by separating capital investment and guarantee generation so that the "return after guarantee fees", ie the "efficiency" of the product is higher than with products that generate the guarantee through and with the capital investment itself .
The benefits for the customer are guarantees in the areas in which they are needed, while at the same time offering a high chance of returns. Depending on the product design, there is often more flexibility (for example, fund withdrawal options during the pension withdrawal phase) and transparency than with classic guarantee and hybrid products.
Although an offer from German insurers is already formally possible today, but due to the requirements of the Investment Ordinance (derivatives are not permitted to cover the actuarial reserves) and the actuarial reserves ordinance (guarantees have to be "expensive", discounted at 1.25% since 2015) the products are not economically feasible. Therefore, such products are only offered in Germany by insurers from other EU countries.
Significance for the company
The introduction of VA is associated with considerable challenges for companies. The following are examples of the many corporate areas affected:
- Product management must help shape the value protection concept as a central product component.
- The actuary has to apply new calculation principles and carry out capital market simulations.
- A hedging process must be established in order to generate the necessary guarantee. If the hedging is carried out by an external investment service provider, interfaces to a hedging platform must be established technically and organizationally.
- The company's risk management should be strengthened and expanded to include new aspects.
- The sales requirements for initial training and ongoing transparent sales information must be met and the sales control systems must be adapted accordingly.
Corporate risk
In the event of a general collapse in the financial market, the insurer can neither switch to other (more profitable) investments nor pass on his losses to the customer. Since customer claims are protected by the guarantees, the insurer may have to compensate for any losses that may arise from its equity. It is therefore important for the customer to pay attention to his competence and financial strength when choosing the product provider.
literature
- Oliver Thiel (Steria Mummert Consulting AG): Start for variable annuities in Germany has been delayed . In: Insurance Industry . No. 2 , 2009, p. 88 ( steria-mummert.at [PDF]).
See also
Web links
- Lutz Reiche: The woolly milk sow that lays eggs . In: Manager Magazin . April 18, 2009 ( manager-magazin.de ).
- Heinz Holler, Uwe Klinge: Variable Annuities . In: Insurance Industry . No. 10 , 2006 ( milliman.com (PDF file; 1.29 MB)).
Individual evidence
- ↑ Oliver Wyman GmbH (Ed.): Press release - Variable Annuities: Product innovation for the European insurance market . ( online ( Memento of the original from January 1, 2015 in the Internet Archive ) Info: The archive link has been inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this note .; PDF; 51 kB)
