Fitch: U.S. Life Insurers Face Increasing Risk from Variable Annuities

CHICAGO--(Business Wire)--
Fitch Ratings sees equity market performance 2008 as having a
dramatic impact on U.S. life insurers active in the variable annuity
market. Persistent adverse market conditions will pressure life
insurer's earnings and risk-based capital levels for the balance of
2008 and into 2009. The industry ability to manage this growing risk
exposure represents one of the most significant risk management
challenges confronting U.S. life insurers.

Fitch's Special Report, '2008 Financial Turmoil Increases Variable
Annuity Risk' released today, summarizes Fitch's views on the variable
annuity market, including a summary of current market trends, an
examination of the key risks, and an assessment of capital needed to
support the variable annuity business given recent market performance.

Fitch estimates that capital (and reserves) needed to support the
variable annuity business in the U.S. has increased by up to $15
billion during 2008 year-to-date due to the dramatic decline in the
equity markets. At the same time, earnings have been negatively
affected due to lower fee income from declines in net asset values,
higher hedging costs, and increased reserve requirements to support
the product guarantees.

'Equity market performance in 2008 constitutes a significant
stress scenario for variable annuity writers in the U.S.,' said
Douglas Meyer, a Managing Director in Fitch's U.S. Insurance group.
'We are concerned that insurers are overly optimistic about the
effectiveness of their hedging programs, which are designed to
mitigate the losses associated with a downturn in the equity market.
Challenges brought on by unfavorable market conditions will likely
drive further consolidation in the variable annuity market.'

The Special Report, '2008 Financial Turmoil Increases Variable
Annuity Risk' is now available under the Financial Institutions then
Insurance on www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, Chicago
Douglas L. Meyer, CFA, 312-368-2061
Jeff A. Mohrenweiser, FSA, CFA, 312-368-3182
Peter F. Patrino, CFA, 312-368-3266
or
Media Relations:
Tyrene Frederick-Mack, 212-908-0540, New York
Email: tyrene.frederick-mack@fitchratings.com

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