October 23, 2017 Newswires

Ruark Consulting Releases Annuity Study Results

Business Wire

Surrender rates increase in 2017, following 2016 dip

SIMSBURY, Conn.--(BUSINESS WIRE)-- 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:

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 partially 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.
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.
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.
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.
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.
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.