[October 23, 2017] |
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Ruark Consulting Releases Annuity Study Results
Ruark Consulting, LLC today released the results of its fall 2017
studies of variable annuity policyholder behavior. The studies, which
examine the factors driving surrender behavior, partial withdrawals, and
annuitization, were based on experience from 13.8 million policyholders
spanning the period January, 2008 through June, 2017. A record 25
variable annuity writers participated in the study, comprising $905
billion in account value as of June, 2017.
"Our client annuity writers are finding that it is more important than
ever to have an evidence-based methodology for assumption-setting," said
Timothy Paris, Ruark's CEO. "The industry is also better appreciating
the importance of policyholder behavior risk in variable annuity risk
management. And as always, getting pricing assumptions right can mean
the difference between profitability and unprofitable anti-selection.
RCL's industry studies provide greater insight, and more predictable and
stable results, than companies can achieve by limiting themselves to
their own experience when setting assumptions."
Study highlights include:
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Industry surrender rates in the first half of 2017 have returned
upward to post-crisis levels, following a secular dip in 2016. We see
three regimes in the study window: surrenders at the shock duration
(the year following the end of the surrender charge period) were
nearly 30% at the onset of the 2008 economic crisis; shock rates below
10% were observed during 2016; and otherwise a post-crisis regime has
prevailed, with shock rates in a range of 12-16% from 2009 through
mid-2015 and 13% so far in 2017. The 2016 dip is only partilly
attributable to benefits moving more in-the-money during the year; it
is likely that uncertainty surrounding the DOL's proposed Fiduciary
Rule and political factors encouraged a "wait-and-see" attitude among
many policyholders and advisors.
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Contracts with a lifetime benefit rider have much lower surrender
rates than those with other types of guarantees. In particular, those
who have taken withdrawals no more than the rider's maximum also have
the lowest surrender rates.
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Annuitization rates on policies with guaranteed minimum income benefit
(GMIB) riders continue to decrease. The exercise rate for the riders
with a 10-year waiting period is 2.2% by account value.
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Living benefit annual withdrawal frequency rates have continued to
increase, primarily as a result of increasing utilization efficiency.
Withdrawal frequency for guaranteed lifetime withdrawal benefit (GLWB)
riders is now over 24%, an increase of two percentage points over the
past 18 months.
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Lifetime withdrawal benefit commencement is low, 12% in the first
duration and then falling to the 6-7% range in subsequent years, with
an increase after year 10.
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The effects of moneyness (account value relative to the guarantee
base) on partial withdrawal behavior differ depending on
circumstances. When contracts with lifetime withdrawal benefits are
at- or in the money, policyholders increase the frequency of standard
benefit withdrawals. This is consistent with greater benefit exercise
when the benefit is more valuable. In contrast, when contracts move
out of the money, withdrawals in excess of the maximum amount are more
common. This is suggestive of policyholders taking investment gains
out of the contract.
Detailed study results, company-level analytics, and assumption models
calibrated to this 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.
View source version on businesswire.com: http://www.businesswire.com/news/home/20171023005227/en/
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