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

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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.

Variable annuity lessons include:

  • Activity was depressed in 2020 as a result of COVID-19 and related effects – but not uniformly
  • Surrenders were depressed among the most seasoned contracts; annuity writers may need to model a new behavior regime
  • Income commencement was depressed among qualified policyholders ordinarily subject to RMDs

Fixed indexed annuity lessons include:

  • Similar to VA, FIA surrenders were dampened in 2020 relative to forecasts, particularly among the most seasoned contracts
  • Surrenders spiked on contracts with positive MVA, and there were more of these because of low interest rates
  • FIA income commencement and withdrawal patterns in 2020 appear consistent with historical patterns – so far

COVID-19 impact on mortality:

  • We anticipate 10-15% excess mortality for living benefit contracts and 20-30% for those without LBs
  • Ruark’s 2021 VA Mortality Study later this year will quantify the effects

Ruark remains ready to help our clients manage their policyholder behavior risk with greater information and insight:

  • We have data from a variety of behavioral regimes – monthly policyholder behavior and mortality data going back to 2007 covering about 70% of the market with over $1 trillion of current account values
  • Our rigorous, transparent predictive modeling approach uses company- and industry-level data to tailor models to each company and facilitate quick implementation for pricing, valuation, and risk management. We can quantify the improvement in predictive power and financial risk profile over what a company can do if limited to their own data

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