Thursday, November 06, 2008


Insurers in for More Misery

Insurance companies that have sold billions of dollars worth of annuities that make guaranteed payments when stock indices like S&P 500 fall, could weigh on several companies that offer the products.

Equity index annuities (EIAs), also known as fixed index annuities, pay holders a percentage based on the performance of a market index, such as the S&P 500. As the S&P goes up or down, so does the amount of interest the insurer pays the annuity holder. However, EIAs also offer a minimum guaranteed interest rate, generally about 3% (the "fixed" component). Companies do employ hedging strategies targeted to time the annual index credits paid out to annuity holders which should offset some losses, but the amount of the offset is dependent upon the success of those strategies.

Insurers in for More Misery
Source: Insurance News Net

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