IPSI, Irish Progressive Services International

Variable annuity products have been successful in the United States and Japan over the past decade and are now featuring within the European marketplace.

The term variable annuity typically describes a unit-linked product with some or all of a range of guaranteed minimum benefits. The essential components of a variable annuity are:

1. A unit linked single/regular premium product with exposure to real investable assets
2. A structure enabling a conversion to an annuity or to provide regular income
3. A guarantee(s) providing the investor with protection against falling equity values, declining interest rates, longevity, and early death.

The products are generically known as Variable Annuity products or GMxB products. The “x” refers to the fact that there are different types and instances of the guarantee, notably as follows:-

Products are increasingly combining more than one of these features, notably where a death benefit exists together with an accumulation or income benefit.

Variable annuities are designed to be long-term investments and generally have 2 distinct phases: the accumulation phase, and the payout phase. The guarantees within the variable annuity products are mostly investment guarantees and therefore require suitable assets for hedging. The product provider manages the financial exposure under the guarantees through a sophisticated hedging strategy. Variable annuities have generated significant controversy in recent times, with several high-profile withdrawals from the business due to cost and management of the guaranteed elements of the business.

Within Europe it would appear that the appetite for these products with distributors and investors remains strong. The appeal of the products may lie in the demographic changes taking place within Europe. The over 50s are growing wealthier and are looking to protect their lifestyles in an environment where state and corporate defined benefit pensions are being curtailed, and where asset volatility have created awareness of the downside risks associated with investments. Variable annuities address some of these concerns, offering access to market investment returns, whilst simultaneously providing protection in a flexible and transparent manner. The current credit crises has strongly highlighted the value of the guarantee, and reinforces a key ‘unique selling point’ for the variable annuity product; the possibility of downside protection whilst still offering the ability to participate in the market growth.

IPSI has an extensive experience in administering Variable Annuities within several European markets on behalf of our clients. We have been administering these products since 2007, relatively early in the process of the products introduction to the European marketplace. IPSI’s experience and efficient operational process in supporting this product within several European territories, combined with our experience of complying with pan-European General Good requirements, can provide a cost-effective, speedy and above all reliable service for new entrants to this market.

Variable Annuity European History

*As at Oct 2009, IPSI support VA product sold and distributed in the following territories; Greece, Italy, Poland, Spain