Did annuity issuers radically underestimate the cost of hedging guarantees?

Pacific Life and The Hartford have joined the ranks of insurers who are raising prices and fees on some of their most popular investment products: variable annuities that promise to provide market gains with no risk, and a lifetime stream of income.

The moves suggest a problem that critics have long suspected: Many insurance companies radically underestimated the cost of hedging their guarantees in a market meltdown. Now that the markets have crashed, some investors will find they’re paying a lot more for the same product.

SmartMoney: More Insurers Raise Fees on Variable Annuities