Late yesterday, it occurred to me, knowing I was to post on this blog today, why not weigh in on the hottest news to come off the presses, namely the planned merger of Equitable and Corebridge, which was just announced? I guarantee I’ll have a different take than what you’ve read in most quarters.

Let me cut to the chase. I firmly believe this linking of two industry titans has much to do with variable annuity benefit risk mitigation. In fact, it is only the latest in a series of events, a de-risking trend that started after the 2008 financial crisis, when insurers started to realize that death and living benefits they had been selling were not sustainable.

How did industry players attempt to reduce their risks over time? Let me count the ways: by raising fees; reducing rollups and income rates; closing benefits to new sales entirely; limiting additional premium into existing ones; offering benefit buyout and exchange packages; curtailing sub-account options and introducing managed-volatility portfolios to ease hedging strain; creating benefits that allow for changes to occur by rate sheet rather than introducing a brand-new rider (to limit fire sales); developing new forms of reinsurance that put less of a burden on the reinsurer, allowing for capacity to open up again; exiting the VA business entirely; and spinning off annuity operations into stand-alone companies.

To bring us more into the present, I noticed an interesting thing Equitable and Corebridge have in common, which is they have VA market risk benefit (MRB) reinsurance with Venerable Holdings. Equitable’s deal covers GMIB risk of certain vintages (i.e. some of the richest riders, circa 2006-2008); Corebridge, finalized its $51 billion deal last June.

So if one is as avid a reader of company quarterly financials as I am, one would have noticed that Page 12 of Corebridge’s 2Q25 supplement shows $40 billion in GMWB account values; in the third quarter QFS, that number was gone, in favor of a much lower one related, apparently, only to group VA contracts. I have to think the big GMWB account value reduction was linked to the Venerable reinsurance pact.

And here’s some historical perspective. Years ago, I used to track VA death and living benefit account values and net amount at risk (NAR) fairly frequently, although alas, I got out of that habit because it was so time consuming. In any event, according to one of my old spreadsheets, the GMWB values held by AIG in 2019, thus pre-spinoff, were in excess of $40 billion. This suggests that those riders were quite “sticky” and not running off.

Corebridge also has reinsurance coverage through Fortitude Re, a company created by AIG in 2018 and later purchased by two private equity firms (with AIG retaining a residual stake).  Thus, the more recent deal, to my mind, was to diversify Corebridge’s reinsurance coverage beyond just that relationship.

In my view, Equitable’s GMIB values were sticky for quite some time. In looking at my tracking sheets, benefit assets in 2019 were about the same as what they were eight years earlier. More recently they were down from those levels but still considerable. In Equitable’s 1Q22 supplement one can see the reduction in GMIB reserves due to the reinsurance deal, from about $11.7 billion in 1Q21 to $4.6 billion the following quarter.

I’ve long heard executives say quarterly GAAP earnings jolts from MRBs are “noise” that doesn’t reflect the overall health of their annuity operations (which is why they will exclude it from adjusted operating earnings, which thus look smoother). I can understand that, but to me, the noise is real enough for companies to isolate it, or move it elsewhere.

In the case of Equitable and Corebridge they had already moved MRB liabilities to the same reinsurer, becoming, for lack of a better term, part of an extended family. Once they are merged, their familial ties will only be stronger.