Increasing data exposure in key areas
SIMSBURY, Conn.–(BUSINESS WIRE)–#fixedindexedannuities–Ruark Consulting, LLC today released the results of its 2019 industry
studies of variable annuity (VA) policyholder behavior, which include
surrenders, income utilization and partial withdrawals, and
annuitizations.
“Data exposures in key areas have increased considerably since last
year’s studies, allowing for more detailed analysis and higher
credibility of results,” said Timothy Paris, Ruark’s CEO.
Among the notable increases in exposure:
-
Nearly double the exposure in years 11 and later, including income
commencement behavior after common 10-year deferral incentives for
guaranteed lifetime withdrawal benefits (GLWB). -
12% increase in exposure for in-the-money GLWBs, following equity
market declines during the fourth quarter of 2018. -
29% increase in exposure for guaranteed minimum income benefits (GMIB)
past their waiting period.
Total data comprises 85 million years of exposure and 14 million
policyholders from 24 participating companies spanning the 11-year
period from 2008-2018, with $795 billion in account value as of the end
of the study period.
Highlights include:
-
GLWB deferral incentives appear to be effective. Income commencement
rates are low overall, but double in year 11 with the expiration of
common 10-year bonuses for deferring income, before falling to an
ultimate rate. -
Annual withdrawal frequency rates for GLWB and GMIB have continued to
increase and have become more efficient with approximately 60% of
recent experience at the full guaranteed income amount. -
“Moneyness” (account value relative to the guarantee) affects partial
withdrawal behavior. Income commencement rates increase when GLWBs are
more in-the-money. When guarantees move out-of-the-money, withdrawals
in excess of the maximum amount are more common, which is suggestive
of policyholders taking investment gains out of the contract. -
On contracts without GLWB or GMIB, free partial withdrawal amounts
increase after the end of the surrender charge period, similar to the
familiar “shock” in surrender rates. -
Surrender rates have not returned to 2008 levels, even as strong
equity market performance has boosted account values in recent years. -
Three surrender regimes are evident during the study period:
surrenders at the shock duration were nearly 30% at the onset of the
2008 economic crisis, and in a range of 12-16% subsequently except for
2016 when they reached their nadir below 10%. -
Contracts with GLWB and GMIB have much lower surrender rates, and this
is even more pronounced for those limiting their partial withdrawals
to the guaranteed income amount via systematic withdrawal programs. -
Surrenders exhibit a dynamic relationship to moneyness, whether
measured on a nominal (account value relative to the GLWB benefit
base) or actuarial (reflecting interest and mortality) basis. On a
nominal basis 81% of GLWB exposure is in-the-money, whereas on an
actuarial basis only 11% is in-the-money. -
Annuitization rates for GMIBs are in the low single digits and
continue to decline. “Hybrid” versions that allow partial
dollar-for-dollar withdrawals have much lower rates than traditional
versions. Factors influencing annuitization rates include age,
duration, last year of eligibility, death benefit type, contract size,
and moneyness.
Detailed study results, including company-level analytics, benchmarking,
and customized behavioral assumption models calibrated to the study
data, are available for purchase by participating companies.
Ruark Consulting, LLC (www.ruark.co),
based in Simsbury, CT, is an actuarial consulting firm specializing in
principles-based insurance data analytics and risk management. Since
2007, Ruark’s industry- and company-level experience studies of the
variable annuity and fixed indexed annuity markets have served as the
industry benchmarks. Its behavioral analytics engagements range from
discrete consulting projects to full-service outsourcing relationships.
As a reinsurance broker, Ruark has placed and continues to administer
dozens of bespoke treaties totaling over $1.5 billion of reinsurance
premium and $30 billion of account value, and also offers reinsurance
audit and administration services.
Ruark’s consultants are frequent speakers at industry events on the
topics of longevity, policyholder behavior, product guarantees, and
reinsurance. Their work and commentary have appeared in numerous
industry publications. Ruark Consulting enjoys an ongoing collaboration
with the Goldenson Center for Actuarial Research at the University of
Connecticut.
Contacts
For Further Inquiries:
Timothy Paris, FSA, MAAA
CEO, Ruark
Consulting, LLC
[email protected]
860.866.7786
www.ruark.co
