Milliman Acquires Ruark Consulting

Ruark today announced the sale of Ruark Consulting to Milliman, Inc., a premier global consulting and actuarial firm. It has been our privilege to serve our clients and we look forward to continuing to serve them as part of Milliman.

For further details, please see:

2022 Behavioral Analytics Plans


To aid your planning for the rest of this year and next year, here is a 1-page summary of our plans.

Meanwhile, our 2021 VA mortality study is in flight and we expect to complete it in November. Data through YE2020 so this will yield great insights into annuity mortality generally, selection effects by guarantee type and other factors, and of course the impact of COVID-19.

2021 FIA and VA elective behavior studies are already complete. If you have not already done so, please contact me to learn more or purchase.

Thank you for your ongoing support!



Video: How did our March 2020 predictions shake out?

Spoiler alert -- quite well!

Let us help you do the same with our industry data and predictive analytics.  Please contact me to purchase our 2021 FIA and VA studies (including mortality study on the way in November), if you have not done so already.

Thanks to all of you who joined our call on August 19.  In case you missed it, video is below.  And here are the discussion slides and whitepaper.



COVID-19 and annuity policyholder behavior: Looking back, looking ahead

To download the full report, click here.

Executive Summary
We review 2020 annuity policyholder behavior, comparing actual experience to our March 2020 forecasts. The effects of COVID-19 – both expected and unexpected – suggest important lessons for future modeling and assumption-setting.Read more

Preparing for LDTI

Thanks to all of you who joined our call on July 22.  In case you missed it, discussion slides are here.


Ruark Consulting Releases 2021 Variable Annuity Studies

COVID-related factors dampened 2020 policyholder activity in key sectors

Ruark Consulting, LLC today released the results of its 2021 industry studies of variable annuity (VA) policyholder behavior, which include surrenders, income utilization and partial withdrawals, and annuitizations.

“We saw clear dampening effects of the COVID-19 pandemic on VA policyholder behavior. But while many people like to say ‘everything changed’ in 2020, that’s not exactly true,” said Timothy Paris, Ruark’s CEO. “With the benefit of full-year 2020 data, we were able to isolate what did change – and what didn’t. Similar to what we observed during and following the Global Financial Crisis in 2007-8, this has significant financial implications for annuity companies’ modeling of future behavior, including product pricing and risk management.”

Ruark’s 2021 study spanned the period from 2008 through 2020, incorporating data from the full calendar year 2020. It thereby captured effects of COVID-19 and related market movements as they developed throughout the year. COVID-related findings include:

  • Pandemic-related factors dampened VA policyholder behavior in 2020. Extreme market activity in the first half of the year, disruption to policyholders’ usual communication patterns with advisors and agents by COVID-related social distancing, and the suspension of required minimum distributions under the CARES Act all served to depress surrender and income commencement behavior; however, the effects were not uniform, instead manifesting in specific market sectors as described below.
  • In the first half of 2020, declines in account values made guarantees relatively more valuable, leading to greater persistency.
  • As annuity sales volumes fell in 2020, VA surrender rates fell as well. However, the declines in surrender rates were concentrated among ultimate contract durations, where rates fell 1-2 percentage points independent of rider type or benefit value. Evidence suggests producers focused their attention on contracts at the shock duration (immediately following the expiration of surrender charges), leading to less turnover among the longest-dated contracts. The decline in surrenders is suggestive of a new, unique surrender regime, distinct from the regimes we observe before and after the 2008 financial crisis.

  • Tax-qualified contracts over age 70 ½ commenced GLWB utilization at sharply reduced rates in 2020, even as commencement rates for other age-tax cohorts stayed level or increased.

  • GLWB commencement rates were depressed in 2020 among contracts with the highest propensity to exercise the benefit: in-the-money contracts following the end of the deferral bonus period. Both the level and sensitivity of commencement rates were reduced.
  • GMIB annuitization rates accelerated their downward trend in 2020, but only among “hybrid” forms designed for regular withdrawals during the accumulation period.

Study data comprised 93 million years of exposure and 14.9 million policyholders from 21 participating companies, with $768 billion in account value as of the end of the study period. The study’s in-the-money exposures on GLWB contracts were 31% higher than in Ruark’s 2019 study (completed before the pandemic began) and 64% higher for deep in-the-money contracts. Among contracts issued since 2011, deep in-the-money exposure increased to 12% of total exposure, up from 6% in 2019. The study contained over 900,000 exposure years prior to withdrawal commencement for contract durations 11 and beyond, nearly tripling the comparable exposure in Ruark’s 2019 study.

Other study highlights include:

  • GLWB deferral incentives appear to be effective. Income commencement rates are low overall; less than 15% in the first year and falling to less than half of that in years 2-10. However, commencement rates more than double in year 11 with the expiration of common 10-year bonuses for deferring income, before falling to an ultimate rate. After commencement, GLWB continuation rates are over 85%.
  • Income commencement rates increase when GLWBs are more in-the-money, that is, the benefit base exceeds the account value. This effect is quite pronounced after the expiration of common 10-year deferral incentives, with commencement rates ranging from low single digits to nearly 20% depending on moneyness.

  • Annual withdrawal frequency rates for GLWB and GMIB have continued to increase and have become more efficient with approximately 68% of recent experience at the full guaranteed income amount.
  • Free partial withdrawal amounts increase after the end of the surrender charge period, similar to the familiar “shock” in surrender rates. Excess withdrawal amounts on GLWB and GMIB increase as well.
  • Contracts with GLWB and GMIB have much lower surrender rates, and this effect is even more pronounced for those limiting their partial withdrawals to the guaranteed income amount.
  • Policyholders that take systematic withdrawals on GLWB and GMIB exhibit a select-and-ultimate effect, with very low surrenders in the first systematic withdrawal year and increasing thereafter. In the fourth systematic withdrawal year and beyond, surrender rates are comparable to those of contracts that have not taken any withdrawals.
  • When calculating relative value for GLWBs, use of a “nominal” moneyness basis (account value relative to the GLWB benefit base) can be deceiving, since it fails to reflect important aspects of the product’s economics. Therefore, it may be preferable in many cases to use an actuarial basis that incorporates interest and mortality rates. Surrenders exhibit a dynamic relationship to moneyness, whether measured on a nominal or actuarial basis. On a nominal basis 80% of GLWB exposure is in-the-money, whereas on an actuarial basis only 13% is in-the-money.

  • Surrender rates vary little across distribution channels, once other drivers of surrender behavior are accounted for. The exception is where companies cannot ascertain whether a policyholder has an ongoing relationship; where the distributor-policyholder relationship is weak, surrenders are as much as 34% higher than average and 45% higher than under career agency distribution.
  • 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 which reduce the guarantee in a pro-rata fashion, especially in the first year of eligibility.
  • Factors influencing annuitization rates include age, duration, last year of eligibility, death benefit type, contract size, and moneyness. The effects of size vary depending on the benefit form and also the distribution channel, with considerably higher annuitization rates where the distributor-policyholder relationship is weak.

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.

When once in a century happens twice in 13 years

Are you tempted to dismiss 2020 experience data for your current assumption development work?  Be careful!  Let's look back to this century’s FIRST once in a century event, the Global Financial Crisis of 2007-8, and see how things turned out after that.

Ruark 2010 studies
Surrender rates fell by about half during the crisis and have not returned to prior levels.  The prevailing opinion is that policyholders curtailed financial activities in favor of watchfulness.  A combination of low interest rates and product de-risking means that fewer attractive alternatives are available.

Ruark 2011 studies
The reduction in surrender rates during the crisis has evolved into flatter subsequent rates.  The in-the-money effect, as owners have higher persistency when they perceive more value in annuity guarantees, is still strongly evident, with convincing evidence for a different regime now versus prior to the crisis.

Ruark 2012-13 presentations
Dynamic moneyness relationships have not been stable through the recent crisis -- in fact, sensitivities have increased.  For many years, policyholder behavior risks were not a major concern, until they were.  Here are a few biggies from the public disclosures…

2011:  CAD 300m
2012:  USD 300m
2012:  EUR 600m
2012:  USD 1,100m

What is your company doing to understand and manage policyholder behavior risks?  Do you put as much into this as for management of capital markets risks?  Would you say that you are ahead of the pack?  Would you like to be?  What might this look like?

Ruark 2020-21 studies and presentations
ANOTHER once in a century event, for product risks that are highly sensitive to market crises?!  Yikes.  Dismiss 2020-21 data at your peril.

So don't miss out on our 2021 VA policyholder behavior studies which are on schedule for completion by June 30, with data through year-end 2020.  Please contact me if you have not already submitted your order form.  And triennial VA mortality study is on the way in the fall, and 2021 FIA studies are still fresh since February.

Still not enough?
Thanks to Tamiko Toland and the good folks at CANNEX for including me in their interview series here.  Full video, brief clips, and Q&A document.




Discussion slides: 2021 fixed indexed annuity industry studies

If you were not able to join our call on March 18, here are the discussion slides.  The theme is "bounded rationality" -- evidence of FIA policyholder decision-making that is sometimes logical and efficient, and other times not so much.  Which I can relate to -- this would have been a video except I forgot to click "record".

Ruark Releases 2021 Fixed Indexed Annuity Study Results

Provides first look at the effects of COVID-19 on policyholder behavior

Ruark Consulting, LLC today released the results of its 2021 industry studies of fixed indexed annuity (FIA) policyholder behavior, which include surrenders, income utilization and partial withdrawals. Ruark’s FIA studies cover products both with and without a guaranteed lifetime income benefit (GLIB).

“This study gave us our first look at the effects of COVID-19 on FIA policyholder behavior,” said Timothy Paris, Ruark’s CEO. “Given record low interest rates, and disruptions to sales channels, there was no way to know whether past patterns would continue. We’re intrigued by how some relationships changed -- and others didn’t.”

The study data comprised nearly 4 million policyholders from 16 participating companies spanning the 13-year period from 2007-2020, with $264 billion in account value as of the end of the period. GLIB exposure constituted 43% of exposure overall, and 47% of exposure in the last 12 study months. GLIB exposure beyond the end of the surrender charge period increased 83% over 2020 study exposure.

Highlights include:

  • Extreme market activity, and COVID-related disruption to policyholders’ usual communication patterns with advisors and agents, had mixed effects on 2020 surrender activity. Record low interest rates led to more positive market value adjustment, and contracts in the surrender charge period with a positive MVA surrendered at higher rates. For contracts beyond the shock duration, surrender rates declined, consistent with an industry-wide decline in gross annuity sales in 2020; a proportion of gross sales is attributable to exchanges of one annuity product for another.

  • Contracts with a guaranteed lifetime income benefit have much better persistency than those without, and among contracts that have begun taking income withdrawals, surrender rates are even lower. Persistency appears insensitive to nominal moneyness (the relationship of account value to the benefit base), but when an actuarial moneyness basis which discounts guaranteed income for interest and mortality rates is applied, we see that persistency is greater when the economic value is higher, as should be expected.

  • The relationship between surrender charges and surrender rates can be quantified. The study examines the relationship of persistency to the effective surrender charge, that is, the difference between account value and cash surrender value (including bonus recapture).
  • Surrenders are sensitive to external market forces as well as the absolute level of credited interest rates. Contracts earning less than 2% exhibit sharply higher surrenders than those earning more. As competitive market interest rates increase, so do surrenders, though there is some indication that a higher credited rate tempers the increase. Equity returns are negatively correlated with surrenders, but only for contracts without an income benefit.

  • Where cash surrender values are subject to market value adjustment, surrender rates for policies with a positive market value adjustment exceed those for policies with a negative adjustment. In the aggregate, policyholders act as though a positive MVA is a bonus, rather than a mechanism to make both parties whole, while surrender rates for contracts with negative MVA are similar to those for contracts with no MVA feature. Among contracts with a positive MVA, surrender rates are inversely related to equity market performance; we surmise that policyholders who are disappointed in credited returns on their FIA take advantage of the temporary offset provided by a positive MVA, and surrender at higher rates.
  • Lifetime income commencement rates are low, 7% overall in the first year following the end of the waiting period and then falling to approximately 3%in years 3 and later. There is evidence of a spike in utilization after year 10, particularly where the benefit is structured as an optional rider rather an embedded product feature. Age, tax status, and contract size all influence commencement rates.
  • We see little observable effect on GLIB utilization from COVID-19 disruptions to sales channels and capital markets, given initial 2020 indications.
  • Lifetime income utilization increases sharply when policies are in the money, that is, the benefit base exceeds the account value. After normalizing for age, tax status, and contract duration, contracts that are 25% in the money or more exercise at a 12% rate. In contrast, when contracts with lifetime withdrawal benefits are out of the money, at the money, or modestly in the money, policyholders exercise at a base rate of about 2%. Income commencement rates are most sensitive to moneyness following the end of the rollup period.

  • FIA contracts typically offer the opportunity to take 5-10% of account value annually in penalty-free withdrawals, often following a 1-year waiting period. This is the case for contracts with and without a GLIB, though free partial withdrawal frequencies and amounts are somewhat lower on contracts with a lifetime income guarantee. Free partial withdrawal activity is influenced by age and required minimum distributions, as well as contract size and the presence of a waiting period.

  • Withdrawal sizes spike in the year following the end of the surrender charge period, when all partial withdrawals become penalty-free; average withdrawal sizes for contracts without GLIB jump by 10% of account value in the year immediately following the end of the surrender charge period.

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.