Ruark Consulting Releases 2019 Variable Annuity Study Results

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

For more than 50 years, Business Wire has been the global leader in press release distribution and regulatory disclosure.

For the last half century, thousands of communications professionals have turned to us to deliver their news to the audiences most important to their business through the sources they trust most. Over that time, we've gone from a single office with one full time employee to more than 500 employees in 32 bureaus.