Ruark Releases 2019 Variable Annuity Study Results

Increasing data exposure in key areas

Ruark Consulting, LLC today released the results of its 2019 industry studies of variable annuity (VA) policyholder behavior, which include surrenders, income utilization and partial withdrawals, and annuitizations.

“Data exposures in key areas have increased considerably since last year’s studies, allowing for more detailed analysis and higher credibility of results,” said Timothy Paris, Ruark’s CEO.

Among the notable increases in exposure:

  • Nearly double the exposure in years 11 and later, including income commencement behavior after common 10-year deferral incentives for guaranteed lifetime withdrawal benefits (GLWB).
  • 12% increase in exposure for in-the-money GLWBs, following equity market declines during the fourth quarter of 2018.
  • 29% increase in exposure for guaranteed minimum income benefits (GMIB) past their waiting period.

Total data comprises 85 million years of exposure and 14 million policyholders from 24 participating companies spanning the 11-year period from 2008-2018, with $795 billion in account value as of the end of the study period.

Highlights include:

  • GLWB deferral incentives appear to be effective. Income commencement rates are low overall; about 12% in the first year and falling to about 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.  The pattern for GMIB is similar, although somewhat muted. After commencement, continuation rates are over 80%.

  • Annual withdrawal frequency rates for GLWB and GMIB have continued to increase and have become more efficient with approximately 60% of recent experience at the full guaranteed income amount.

  • The effects of "moneyness" (account value relative to the guarantee base) on partial withdrawal behavior differ depending on circumstances. Income commencement rates increase when GLWBs are more in-the-money. This effect is quite pronounced after the expiration of common 10-year deferral incentives, with commencement rates ranging from low single digits to nearly 40% depending on moneyness. At all durations, when guarantees move out-of-the-money, withdrawals in excess of the maximum amount are more common, which is suggestive of policyholders taking investment gains out of the contract.
  • On contracts without GLWB or GMIB, free partial withdrawal amounts increase after the end of the surrender charge period, similar to the familiar “shock” in surrender rates.

  • 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 GLWBs which have strong incentives for persistency. Also, VA writers de-risked their product offerings in the wake of the 2008 financial crisis and the low interest rate environment has reduced the attractiveness of non-VA investment alternatives.

  • Three surrender regimes are evident during the study period: surrenders at the shock duration were nearly 30% at the onset of the 2008 economic crisis, and in a range of 12-16% subsequently except for 2016 when they reached their nadir below 10%. The 2016 dip is believed to be the result of uncertainty surrounding the DOL’s proposed Fiduciary Rule and other political factors.
  • 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 81% of GLWB exposure is in-the-money, whereas on an actuarial basis only 11% is in-the-money.

  • 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.

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


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 (timothyparis@ruark.co).


Our 2017 plans for behavioral analytics

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Are your assumptions informed by credible industry experience?

 

checkWe provide a powerful combination of industry- and company-level experience studies, predictive modeling, traditional analytical techniques, and expert judgment, based on seriatim monthly data since 2007, covering approximately 70% of the annuity industry.

Is your analytical framework robust as new data emerges?

checkWe work with you to customize and implement our behavioral analytics framework, with transparent linkage from experience data to assumption models, naturally suited to regular updates for inforce and new business.

Are your analytics granular enough to mitigate anti-selection and proactively manage changes in your business mix?

checkWe address the many factors of influence and their changes over time, including product and guarantee type, surrender charge period and duration, moneyness of guarantees on actuarial and nominal bases, contract size, tax status, age, gender, distribution channel and compensation structures, and income utilization and efficiency.

Is speed important to you?

checkIt is to us too. We provide the timely and immediately actionable results you need to efficiently manage your company’s behavioral risks.

 


We aim to be the platform and industry benchmark for principles-based insurance data analytics and risk management.


 

2017 VA and FIA Behavioral Modules

For each of: Options
VA Surrenders       VA Income Utilization       VA GMIB Annuitization       FIA Surrenders       FIA Income Utilization 1 2 3
Experience Studies – industry results in aggregate, along with your company results, in a detailed report with numerical exhibits covering key factors, cohorts, and dynamics
Customized assumption model – initially calibrated to industry results, and tailored to your company based on credibility techniques
Review of your current assumptions, and comparison to the customized model above
Benchmarking of your results relative to peers
Presentation and discussion with our team
Membership on our Behavioral Analytics Advisory Council

 

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Would you like to learn more about implementation and pricing?

Contact: 

Timothy Paris
860.866.7786


About Us

We aim to be the platform and industry benchmark forprinciples-based insurance data analytics and risk management.

Fueled by data contributed each year from companies comprising over $1.1 trillion of variable and fixed indexed annuity current account values, Ruark’s industry experience studies and customized dynamic behavioral model services provide clients actionable quantitative insights into complex and interrelated behaviors such as surrenders, partial withdrawals, annuitizations, and mortality, based on a combination of expert judgment and predictive modeling techniques.  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.

We are frequent speakers at industry events on the topics of longevity, policyholder behavior and dynamic model development, product guarantees, and reinsurance.  Our work and commentary have appeared in National Underwriter, Investment News, Life Annuity Specialist (Financial Times), American Banker, Annuity News, InsuranceNewsNet, Retirement Income Journal, Insurance Risk, and The Actuary and several other newsletters and podcasts of the Society of Actuaries (SOA).  In 2018, CEO Timothy Paris was the subject of a SOA video and article about actuaries embracing predictive analytics.  Tim is also the author of the chapter Modeling and Managing Policyholder Behavior Risk in the recently published book “Non-traditional Life Insurance Products with Guarantees”.  We are active within the SOA, through elected membership on section councils, editorial work for publications, working groups, and other projects.

We enjoy an ongoing collaboration with the Goldenson Center for Actuarial Research at the University of Connecticut.

OUR TEAM

Timothy Paris

Timothy Paris


About Us

Contact Tim

Tim is chief executive officer at Ruark Consulting LLC, which aims to be the platform and industry benchmark for principles-based insurance data analytics and risk management.

Fueled by data contributed each year from companies comprising over $1.1 trillion of variable and fixed indexed annuity current account values, Ruark’s industry experience studies and customized dynamic behavioral model services provide clients actionable quantitative insights into complex and interrelated behaviors such as surrenders, partial withdrawals, annuitizations, and mortality, based on a combination of expert judgment and predictive modeling techniques.  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.

Tim is an actuary, business leader, and frequent speaker at industry events on the topics of longevity, policyholder behavior and dynamic model development, product guarantees, and reinsurance.  Through his work at Ruark, in 2018 he was the subject of a Society of Actuaries (SOA) video and article about actuaries embracing predictive analytics. His work and commentary have appeared in National Underwriter, Investment News, Life Annuity Specialist (Financial Times), American Banker, Annuity News, InsuranceNewsNet, Retirement Income Journal, Insurance Risk, and The Actuary and several other newsletters and podcasts of the SOA.  Tim is also the author of the chapter Modeling and Managing Policyholder Behavior Risk in the recently published book “Non-traditional Life Insurance Products with Guarantees”.

Tim is active within the SOA as leader of the Assumption Development and Governance Subgroup of the Modeling Section, and member of the Policyholder Behavior in the Tail working group of the Joint Risk Management Section.  He has previously served as an elected member of the Reinsurance Section Council, Caribbean Editor for the International Section magazine, and Contributing Editor for The Actuary magazine.

Tim is a member of the Advisory Board of the Goldenson Center for Actuarial Research at the University of Connecticut, and member of the Board of Directors of Retirement Income Group Limited (New Zealand).  He has previously served as a member of the Business Advisory Panel of Insurance Ireland, and member of the Financial Reporting Committee of the Bermuda International Long Term Insurers and Reinsurers Association.

Tim is a Fellow of the Society of Actuaries, a Member of the American Academy of Actuaries, and a graduate of the University of Connecticut, where he earned a BS in Mathematics with high honors.

Claudia Berns


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After graduating from the University of Connecticut with a Bachelor’s Degree in Finance, Claudia began her career at the Travelers Insurance Company in Hartford CT in the Life, Health and Financial Services Department.  She then accepted a position at GE as a Financial Analyst.  Claudia was selected as an internal recruit for the prestigious Financial Management Program where she gained extensive experience in various areas including accounting, sourcing, cost estimating and project management.

Before joining Ruark, she was an integral part of a start-up small business which she successfully managed for over ten years.  In her current position, she is responsible for operations support and project management.

Michael Doyle


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Mike Doyle serves as the Information Technology Director for Ruark. He has been working in the technology field for over twenty years. During this time, he has held a number of leadership positions.

Mike ran his own technology firm which Ruark Consulting integrated into the Data and Technology Practice in 2012. He has also held senior positions in industries such as Software, Manufacturing, Marketing, Distribution and Business Consulting.

He brings his depth of experience, technical skills and management capabilities to The Ruark Companies where he supports the production, administration and management operations.

When not working on an computer Mike can be found with his family or on a soccer field.

Peter Gourley


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Peter is responsible for Ruark’s experience studies. These studies provide clear, reliable, and useful information to client company audiences. Peter joined the company in January, 2002 and has been involved in all aspects of the company in his tenure.

In his 20-year career prior to Ruark, Peter served in a variety of actuarial roles in many areas at CIGNA and Lincoln National. Peter graduated from Middlebury College with a BA in mathematics. He lives in Bloomfield, Connecticut with his wife, Ruth Ann Woodley, another actuary in the Ruark pantheon of companies

Eric Halpern


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Eric Halpern is Chief Operating Officer of Ruark Consulting. In this role, he leads the company’s policyholder behavioral analytics work, including industry- and company-level experience studies, predictive modeling and assumption model development, and related client projects. Eric provides leadership for these products from an actuarial, work process, and information technology standpoint.

Eric comes to Ruark with over 20 years’ experience in actuarial science, financial modeling, risk management, and investment management. Most recently, he was VP of Global Hedging Programs for White Mountains Life Re (Bermuda), a global reinsurer of variable annuity guarantees, where he was responsible for day-to-day management of the company’s financial risk mitigation program. He has also held annuity risk management positions at Phoenix and Cigna, as well as diverse actuarial staff positions at Cigna. Eric holds a BS in Mathematics from Yale University and is a Fellow of the Society of Actuaries.

In addition to his work at Ruark, Eric teaches insurance risk management in the Master’s Program in Financial Risk Management at the University of Connecticut School of Business. He lives with his family in West Hartford, Connecticut.

Mike Loftus


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Mike joined Ruark in January, 2005 and is involved in all aspects of the company, including consulting, reinsurance reporting, and peer review.

Mike came from The Hartford where he worked as a Pricing Actuary for Group Annuities. Prior to that, Mike had a distinguished 15-year career at CIGNA with responsibilities in CIGNA’s Pension and Healthcare operations.

Mike is a graduate of American International College where he earned his BA in Mathematics in 1983. He lives in Windsor, CT with his wife, Molly, and three children.

Judy Mason


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Judy joined Ruark in January, 2001. As an Analyst/Manager, she handles a broad range of duties including client reporting, budgeting and financial reporting, tax filing, invoicing and banking. Before joining RIA, Judy worked at CIGNA for many years.

Judy resides with her husband, Scott, in Windsor, Connecticut

Sally Osit


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Sally joined Ruark in July, 2001, where she focused on reinsurance program reporting, including book of business reviews, experience studies, and program renewals. Currently, as Chief Administrative Officer, she has led the administration of Ruark as it grows its consulting, reinsurance & experience studies offerings.

Sally has over 24 years of varied insurance industry experience. Prior to joining Ruark, Sally held a position of Director of Integration & Synergy with CIGNA Health Services. She also has a wide variety of both pricing and financial reporting experience, having managed cash flow testing for all of CIGNA’s pension products as well as pricing for CIGNA’s dental, COLI, and 401(k) products.

Sally is a graduate of the University of Connecticut, where she earned her BA in Actuarial Science in 1990. She currently lives in South Windsor, Connecticut with her husband, Alan, and three children.

Michael Riley


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Michael joined Ruark in 2018 as a Data Engineer. In this role, Michael is responsible for management of the firm’s data architecture, including production processes and ongoing development.

Previously Michael was Vice President in Information Systems at Conning managing the investment data warehouse, accounting systems and back office support. He has 30 years’ experience in investments including 20 years managing investment data warehouses. Michael has also worked in various areas at MetLife, Citigroup and Travelers.

Michael earned his CPA in 1981 and Certified Scrum Master in 2017.

Michael graduated from the University of Connecticut, Storrs, with a BA in accounting. He lives in West Hartford, Connecticut with his wife, family and 2 poodles.

Don Ruark


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Don joined Ruark as our Chief Financial Officer in September 2010.

Graduated with Bachelors of Business Administration in 1977 from Eastern Michigan University.

Became a CPA in 1979.

35 years experience, including both the public and private sectors.

Don Resides in Canton MI with wife Kayla, youngest daughter Alyse, and Scout the dog.

Randy Schott


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Randy joined Ruark in 2012 with over 15 years in the insurance industry and actuarial environments.

Prior to joining the company, Randy was involved in Small Group Medical Pricing with Aetna and United Healthcare.  He also has experience with state filings, pension analysis and Underwriting.

Randy is a graduate of The University of Connecticut.  He lives in Vernon Connecticut with his wife and family.

Eric Swan FSA - Ruark Consulting

Eric Swan


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Eric joined Ruark in 2009 with over 20 years of experience in the insurance industry.

Before joining the company, Eric was an Assistant Vice President at MetLife, responsible for product development and pricing of Corporate Owned Life Insurance products. Eric also has experience in pricing retail Universal Life and annuity products, state insurance department and SEC filings, cash flow testing and Illustration Actuary product compliance.

Eric graduated Magna Cum Laude and Phi Beta Kappa from Colby College, where he earned a BA in Economics/Mathematics. He lives in Suffield, Connecticut with his wife and two children.

Ruth Ann Woodley


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Ruth Ann joined Ruark Consulting in 2004 and developed its dental consulting practice. In 2018, that practice became Dental Actuarial Analytics, LLC, an affiliate of Ruark.

Prior to joining Ruark, Ruth Ann spent 11 years with Cigna. There she served as the actuary for Cigna Dental and the reserving actuary for Cigna Healthcare, among other roles. She is involved in volunteer work for the Society of Actuaries and the National Association of Dental Plans.

She is originally from North Carolina, where she graduated from UNC-Chapel Hill with degrees in both mathematics and music. She lives in Bloomfield, Connecticut with her husband Peter Gourley.

Steve Wright


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Steve joined Ruark in 2009 with 17 years of insurance experience, most recently as a principal in a small reinsurance underwriting company. Prior to that he was at The Phoenix and the former Connecticut Mutual, which included positions in Group and Special Risk reinsurance and Ordinary Life reinsurance. Along the way, he also served a few years as a CT-certified high school math teacher, where he beat into his students the love of math.

Currently, Steve is spearheading Ruark’s growth into predictive modeling and assumption setting. His programming abilities and actuarial expertise have also been leveraged to further enhance the company’s annuity industry experience studies.

Steve is a graduate of Bates College where he earned a BS in mathematics, is a Fellow in the Society of Actuaries, and is a Member of the American Academy of Actuaries.