Annuities and surrender activity subject of LIMRA/SOA study

The presence of a surrender charge has an impact on when the bulk of surrender activity occurs in the fixed-rate deferred annuity space.

That is among the results of a study conducted by LIMRA and the Society of Actuaries, which will be presented during the 2025 Life and Annuity Conference, hosted by LIMRA, LOMA, American Council of Life Insurers and the Society of Actuaries.

Key points of the study include the impact of surrender charges on surrender rates, the significance of guaranteed lifetime withdrawal benefit riders, and how these riders affect policyholder behavior and contract longevity.

'Huge shock surrender' cited

Maureen Shaughnessy, LIMRA senior actuary, described some of the study findings. One key finding is that during the surrender charge period, surrender rates are low. Then, in the year the surrender charge expires, “there’s this huge shock surrender in the year that it expires,” she said. “And then thereafter, surrenders remain elevated.”

Shaughnessy said the study results would be useful to insurance carriers as they create products and understand the underwriting that those products require.

Policyholder behavior is important for actuaries to track and measure, she said, because policyholder behavior impacts profitability.

The age and gender of a policyholder also impact when and if annuities are surrendered, the study showed.

FIAs also studied

The study also looked at fixed indexed annuities, looking at surrenders and withdrawals, as well as additional premium deposits after the initial contract year.

Withdrawal activity increases after the age in which older Americans are required to take minimum distributions from qualified plans. Withdrawals from FIAs with GLWB riders are significantly higher than from FIAs without such riders, the study showed.

“Policyholders who have that GLWB rider tend to hold on to their contracts longer than policyholders who do not have that rider because they see the value in that benefit that they purchased,” she said.

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