Pictures of Super Models

Delighted to contribute this cover article to The Modeling Platform newsletter of the Society of Actuaries Modeling section.

And thanks to those of you who attended my presentation at session 08 of the Life & Annuity Symposium this week, which was in a similar vein.

Please contact me at if you would like to learn more about how we use industry-level data and techniques like these to develop a cost-benefit equation for data, and quantifiably improve actuarial models and risk management.

See you at the SOA Life & Annuity Symposium!

I will be speaking at session 08 about policyholder behavior modeling and the risks of over-fitting data.  Hope to see you in sunny Florida!

Ruark releases 2019 Fixed Indexed Annuity study

Surrender rates climbing steadily

Ruark Consulting, LLC today released the results of its 2019 studies of fixed indexed annuity (FIA) policyholder behavior. The studies, which examine the factors driving surrender behavior and income utilization, were based on experience from 3.5 million policyholders spanning the period January, 2007 through September, 2018. A total of 15 FIA writers participated, comprising $240 billion in account value as of September, 2018.

“By aggregating across the industry, our studies offer even our
largest clients a way to achieve greater precision than they could by relying
only on their own data,” said Timothy Paris, Ruark’s CEO. “And as industry
experience develops, the underlying trends are becoming even clearer.”

Ruark’s FIA studies cover products both with and without a guaranteed lifetime income benefit (GLIB). GLIB exposure outside the surrender charge period increased 34% in this edition over 2018.

Study highlights include:

  • After a
    slow decline from mid-2010 through 2016, surrender rates have climbed in
    Shock duration surrender rates in the most recent quarter were
    30%, a level last seen in 2009. Rates following the end of the surrender charge
    period have risen as well. The increase in surrenders correlates with market
    interest rate increases. In contrast to variable annuities, which exhibited a
    dip in 2015-16 corresponding to uncertainty surrounding the DOL’s “fiduciary
    rule”, the effect on FIA surrenders appears to have been more muted.
  • Contracts
    with a guaranteed living income benefit (GLIB) have much better persistency

    than those without. Surrender rates during the surrender charge period for
    contracts with GLIBs are less than half those of contracts without the
    guarantee. Among contracts that have begun taking income withdrawals,
    persistency is better still; shock duration rates are approximately 13%, as
    compared to 26% for contracts without GLIB.
  • Credited rates have a discernable effect on surrenders.
    We observe that contracts earning less
    than 2% exhibit sharply higher surrenders than those earning more
    . There is
    also differentiation among contracts with higher returns, although it is less
    pronounced after normalizing for living presence and utilization. As market interest rates increase, so do
    surrenders, and there is some indication that a higher credited rate tempers
    the increase.
    In contrast, equity returns are negatively correlated with
    surrenders. Taken together, these results suggest that policyholders consider their FIA contract’s performance in the context
    of fixed income investments
    rather than equity market investments.
  • The persistency of contracts with a GLIB rider
    appears insensitive to nominal moneyness, that is, the relationship of account
    value to the benefit base. However, when
    calculation of the guarantee’s relative value is performed by using an
    actuarial moneyness basis which discounts guaranteed income for interest and
    mortality rates, the picture changes.
    Using an actuarial measure, we see
    that (a) GLIB benefits are not generally as valuable to the policyholder as
    they might first appear; and (b) persistency is greater when the actuarial
    benefits are more valuable, as should be expected.
  • Annual
    GLIB benefit commencement rates are low, 7% overall in the first contract
    duration and then falling to the 2-3% range in years 3 and later.
    In contrast
    to variable annuities, which exhibit a spike following the expiration of
    benefit bonuses, FIA utilization remains consistent in later years.
    Benefit commencement rates appear largely insensitive to RMDs. Age, tax status, and contract size all
    influence commencement rates.
    When a living benefit contract does begin
    taking withdrawals, it is likely to continue in subsequent years; average
    continuation rates are 95%.
  • GLIB
    utilization increases when policies are in the money, that is, the benefit base
    exceeds the account value.
    After normalizing for age, tax, and contract
    duration, contracts that are 25% in the money or more exercise at a 10% 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%
  • FIA contracts typically offer the opportunity to
    take 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
    guaranteed living income benefit (GLIB) rider. Base contract withdrawals have
    been largely stable over the past decade. Behavior differs across four groups: Those
    taking the full penalty-free amount; those taking less; those taking excess;
    and those for which no penalty applies.
  • Free partial withdrawal activity on the base
    contract is influenced by age and required minimum distributions, as well as
    contract size and the presence of a waiting period for free partial withdrawals.
    Notably, 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 9 percentage points following
    the end of the surrender charge period.

Detailed study results, including company-level analytics, are available for purchase by participating companies. For further information, please contact Timothy Paris, CEO.

2019 *NEW* Ruark annuity industry studies

In response to client demand, we would like begin the process of gathering policyholder behavior and mortality data for products beyond VA and FIA, as follows:

  • Post-annuitization deferred annuity mortality, including GMIBs and GLWBs in the payout phase.
  • Immediate annuity mortality.
  • Structured settlement annuity mortality.
  • Fixed deferred annuity surrenders, income utilization, and mortality.
  • Structured/indexed variable annuity surrenders, income utilization, and mortality.

If you have not already received the data request templates, please contact us. We request your data submissions by March 31, 2019. Pending your data submissions and purchase commitments, we will circle back with you to let you know what studies we can proceed with and when.

We look forward to broadening our relationship with you through these additional studies and corresponding behavioral modeling. Please contact Tim ( or any of us at Ruark with any questions.

So many presentations in the last few months...

Actuaries' Club of Hartford & Springfield meeting
Equity-Based Insurance Guarantees Conference
SOA Annual Meeting
Valuation Actuary Symposium

Thanks to all of these organizations, and I appreciated the attendee questions and discussions. Each presentation was at least a little different, but this one from the ACHS meeting is representative of the type of insights that our industry experience studies give to our clients, and how we demonstrate the value of our work + industry data in developing customized behavioral models that help insurance companies better manage policyholder behavior and mortality/longevity risks for annuities.


Ruark Releases Fall 2018 Variable Annuity Study Results

Ruark Consulting today released the results of its fall 2018 studies of variable annuity (VA) policyholder behavior. The studies, which examine the factors driving surrender behavior, partial withdrawals, and annuitization, were based on experience from 13.3 million policyholders spanning the period January, 2008 through June, 2018. Twenty-four variable annuity writers participated in the study, comprising $840 billion in account value as of June, 2018.

Study highlights include:

  • Surrender rates have not returned to 2008 levels, even as strong equity market performance has boosted account values in recent years. Newer sales include more lifetime benefit guarantees, which have strong incentives for persistency. Also, VA writers retrenched their product offerings in the wake of the 2008 financial crisis, so transfers to competing products would not generally provide richer guarantees. Low market interest rates similarly reduced the attractiveness of non-VA investment alternatives.

  • Ruark sees three surrender 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 2017-18. The 2016 dip is believed to be the result of uncertainty surrounding the DOL’s proposed Fiduciary Rule and other political factors.
  • The presence of a living benefit rider has a notable effect on surrender rates; contracts with a lifetime benefit rider have much higher persistency than those with other types of guarantees. Also, a contract’s prior partial withdrawal history influences its persistency. Contracts with a lifetime benefit rider that have taken withdrawals in excess of the rider’s annual maximum have surrender rates three points higher overall than other contracts with those riders.  In contrast, those who have taken withdrawals no more than the rider’s maximum have the lowest surrender rates (three points lower at the shock, for example, compared to contracts who have taken no withdrawals).
  • Policyholders that take systematic withdrawals on lifetime benefit riders 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 lifetime withdrawal guarantees, use of a nominal “moneyness” measure -- account value vs. the benefit base -- can be deceiving. A nominal measure fails to reflect important aspects of the product’s economics. Therefore, it may be preferable in many cases to use an actuarial measure of moneyness that incorporates interest and mortality rates. Moneyness exhibits a dynamic relationship to surrenders, whether measured on a nominal or actuarial basis, with out-of-the-money contracts surrendering at rates about triple those of in-the-money contracts. However, when measured on an actuarial basis, we find that most exposure is at-the-money or out-of-the-money: 78% of GLWB exposure is nominally in-the-money, whereas only 11% is in-of-the-money when measured on an actuarial scale.

  • As the market for guaranteed lifetime withdrawal benefit (GLWB) riders matures, it is possible to see the effects of long-dated insurer incentives to delay benefit commencement. Commencement rates are 12% in the first policy year, reflecting the popularity of "income now" designs, and approximately half that in years 2-10. However, usage jumps in year 11, with the expiration of ten-year bonuses for deferring withdrawals common on many riders. Commencement frequency thereafter settles in to an ultimate rate. Among contracts that take a withdrawal, over 85% continue withdrawals in subsequent years.
  • Overall living benefit annual withdrawal frequency rates have continued to increase, and utilization has grown more efficient. Withdrawal frequency for guaranteed lifetime withdrawal benefit riders is now 25%, up one percentage point over the rate reported in Ruark Consulting’s fall 2017 study and three points over the fall 2016 value. GLWB withdrawal frequencies have increased consistently at normal retirement age and above. Most of the increase is attributable to more efficient utilization of the rider benefit, with over half of withdrawals now at or near the maximum benefit amount.

  • The effects of moneyness (account value relative to the guarantee base) on partial withdrawal behavior differ depending on circumstances. We find that the income commencement frequency on contracts with lifetime withdrawal benefits is sensitive to moneyness, consistent with greater benefit exercise when the benefit is more valuable. The effect is quite pronounced after the expiration of deferral incentives, with commencement rates after duration 10 ranging from 2% to 29% depending on moneyness. At all durations, 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.

  • Annuitization rates on policies with guaranteed minimum income benefit (GMIB) riders continue to decline. The overall exercise rate for the riders with a 10-year waiting period is below 2% for the full study period. Rates have been falling steadily since 2010, and quarterly observed rates have stayed at or below 2% since 2014. “Hybrid” rider forms that allow partial dollar-for-dollar withdrawals have much lower exercise rates than traditional forms, which reduce the benefit in a pro-rata fashion – less than 1% for hybrid, vs. 5% for pro-rata; the increasing share of exposure in the study from the hybrid type is a partial explanation for the decrease in annuitization rates over time. The difference is magnified by different patterns of benefit utilization following the end of the waiting period: Owners of pro-rata contracts have 9% exercise rates at the first opportunity, and declining utilization thereafter, whereas hybrid contracts exercise at low but consistent rates across all durations.

Detailed study results, including company-level analytics and customized behavioral assumption models calibrated to the study data, are available for purchase by participating companies.

For further information on results, to purchase the study, or if you have any other inquiries, click here or email Timothy Paris (

SOA and Ruark: predictive analytics video and case study

I appreciate the SOA including me in their case studies of actuaries embracing predictive analytics, and I must give credit to our great team here at Ruark Consulting, our collaborators at the Goldenson Center for Actuarial Research at the University of Connecticut, and our clients.  Here is the video and article.

Those looking for some additional info can find it my article "When is Your Own Data Not Enough?" from The Actuary magazine.