Ruark Consulting Releases Annuity Study Results – PRESS RELEASE



Surrender rates increase in 2017, following 2016 dip

SIMSBURY, CT , October 17, 2017 – 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:

  • Overall 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 contractually defined surrender charge period, or CDSC) 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.
  • 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 four 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).
  • Annuitization rates on policies with guaranteed minimum income benefit (GMIB) riders are low and getting lower. The overall exercise rate for the riders with a 10-year waiting period is 2.2% by account value. Rates have been declining 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 tradition forms, which reduce the benefit in a pro-rata fashion – less than 1% for hybrid, vs. 6% 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.
  • Overall 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 riders is now over 24%, an increase of two percentage points over the past 18 months. GLWB withdrawal frequencies have increased within each cohort of age and tax status, particularly at normal retirement age and above, suggesting the increase is secular. 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.
  • Lifetime withdrawal benefit commencement is low, 12% overall in the first duration and then falling to the 6-7% range in subsequent years. As first noted in Ruark Consulting’s spring 2017 study, exercise rates spike after year 10, indicating that benefit bonuses are effective at delaying exercise. Among contracts that take a withdrawal, nearly 90% continue withdrawals in subsequent years.
  • 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, including company-level analytics, are available for purchase by participating companies.

Ruark Consulting, LLC (, 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.

Ruark’s consultants are frequent speakers at industry events on the topics of longevity, policyholder behavior, product guarantees, and reinsurance. Their work and commentary have appeared in numerous industry publications. Ruark Consulting enjoys an ongoing collaboration with the Goldenson Center for Actuarial Research at the University of Connecticut, and is a member of the Bermuda International Long Term Insurers and Reinsurers Association.

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Timothy Paris, FSA, MAAA
CEO, Ruark Consulting, LLC