Market turmoil: What does it mean for annuity policyholder behavior?

To download the full report, click here.

Executive Summary

We offer insights on expected annuity policyholder responses to recent financial market turmoil, gleaned from our studies of annuity policyholder behavior since 2007.

Variable annuity writers should expect:

  • Greater persistency overall, but elevated surrenders for at-the-money GLWB
  • Greater income utilization, especially for GLWB after the deferral incentive period and “hybrid” GMIB
  • Greater GMIB annuitization elections, especially on traditional “pro-rata” benefit forms

Fixed indexed annuity writers should expect:

  • Greater persistency for GLIB, and lower persistency without GLIB
  • Greater income utilization for GLIB

COVID-19 impact on mortality:

  • Will likely depend on the level of containment among the general population at retirement ages, with potential differences between those with and without living benefit guarantees

Ruark is uniquely positioned to help as risk management takes center stage:

  • We have the data from past times of crisis –monthly policyholder behavior and mortality data going back to 2007 covering about 70% of the market with over $1 trillion of current account values
  • We have developed predictive analytics techniques that use company- and industry-level data to help our clients improve their annuity pricing, valuation, and risk management models. Our approach is rigorous, transparent, and tailored to each company, allowing for quick implementation and quantification of improvement in financial risk profile from what they can do if limited to their own data.

To download the full report, click here.


Ruark Consulting Releases 2018 Fixed Indexed Annuity Mortality Study

Mortality rates vary by living benefit presence & utilization

Ruark Consulting, LLC today released the results of its 2018 study of fixed indexed annuity (FIA) industry mortality. The study was based on experience from 3 million policyholders spanning the period January, 2007 through September, 2017. Fourteeen variable annuity writers participated in the study, comprising $215 billion in account value as of September, 2017.

“We have almost 50% more data than our last FIA mortality study, allowing for high credibility even when splitting results by multiple factors of influence,” said Timothy Paris, Ruark’s CEO. “We’ve also added much more detailed analysis of mortality results by living benefit presence and income behavior, contract size, tax status, interactions, and changes through time. These studies provide new and important insights into FIA mortality, particularly with the growth of living benefit experience beyond the surrender charge period.”

The company’s previous FIA mortality study was released in 2016.

Paris highlighted study enhancements in response to recent regulatory proposals. “It’s not often that life and annuity actuaries need to address new mortality and projection bases for reserves and capital,” he noted, “but now is indeed the time for that. So we’ve included analyses of industry mortality results relative to the 2012 IAM Basic Table with projection scale G2, our proprietary Ruark variable annuity mortality table, and other tabular bases to make the study results as meaningful and actionable as possible for our client companies and their actuaries.”

Study highlights include:

  • After normalizing for age, sex, and duration, Ruark observes a distinct hierarchy in mortality across living benefit presence and utilization. Highest mortality is found on contracts without guaranteed lifetime income benefits (GLIB); those with a GLIB rider that have not begun taking income have mortality at slightly below average; and GLIB contracts that are in the income phase have the lowest mortality, at 88% of average. This hierarchy is consistent with a pattern of selection on the basis of longevity benefits. Ruark also observes a difference in mortality on the basis of tax status.

  • In this study for the first time, Ruark benchmarks results against the 2012 Individual Annuity Mortality (IAM) Basic table with projection scale G2. Ruark also benchmarks results against other standard mortality tables and their proprietary 2015 Ruark Variable Annuity Mortality (RVAM) table. Standard industry mortality tables systematically overstate or understate various age-sex cohorts, even when they closely approximate aggregate mortality. In contrast, the 2015 Ruark VAM table better reflects FIA mortality both in aggregate and by age-sex cells.

  • Ruark's estimate of aggregate FIA mortality has remained stable since 2016. In contrast, VA mortality has fallen approximately 3% since 2015, driven by mortality improvement and changes in the business mix. In the case of FIA, these downward trends are offset by the effects of improved company-by-company data processing in this study, particularly with regard to spousal continuation following the death of the original policyholder.

  • FIA mortality exhibits a select-and-ultimate pattern even in the absence of individual underwriting. Mortality in the first year is 75% of average in the first contract year, jumps 20 percentage points in the second contract year, and then grows by approximately 1.6 percentage points each year thereafter. This phenomenon is consistent with the intuition that FIA buyers might be expected to be somewhat healthier in order to enter into a financial transaction that offers limited death benefits, and various forms of longevity benefits.

  • There is evidence of mortality improvement among FIA policyholders, and the extent of improvement appears to vary depending on whether or not the contract includes a GLIB rider. Contracts with a GLIB rider exhibit improvement consistent with projection scale G2; those without a rider exhibit greater annual improvement.

 

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).


Ruark Consulting Releases Variable Annuity Mortality Study Results

Mortality rates fall 3%, driven by mortality improvement and business mix

Ruark Consulting, LLC today released the results of its 2018 study of variable annuity (VA) industry mortality. The study was based on experience from 13.3 million policyholders spanning the period January, 2008 through December, 2017. Twenty-four variable annuity writers participated in the study, comprising $880 billion in account value as of December, 2017.

“We have 60% more data than our last VA mortality study, allowing for high credibility even when splitting results by multiple factors of influence,” said Timothy Paris, Ruark’s CEO. “We’ve also added much more detailed analysis of mortality results by living benefit and death benefit types, partial withdrawal and income behavior, contract size, tax status, interactions, and changes through time. These studies provide new and important insights into VA mortality, particularly with the seasoning of living benefit blocks beyond the end of surrender charge and bonus periods.”

The company’s previous VA mortality study was released in 2015.

Paris highlighted study enhancements in response to recent regulatory proposals. “It’s not often that life and annuity actuaries need to address new mortality and projection bases for reserves and capital,” he noted, “but now is indeed the time for that. So we’ve included analyses of industry mortality results relative to the 2012 IAM Basic Table with projection scale G2, our proprietary Ruark VA mortality table, and other tabular bases to make the study results as meaningful and actionable as possible for our client companies and their actuaries.”

Study highlights include:

  • Aggregate variable annuity mortality has declined 3% since 2015. The decline is largely attributable to two factors: mortality improvement and changes in the business mix. Contracts with living benefits exhibit lower mortality than average, and these contracts make up an increasing proportion of overall exposure. Whereas 44% of 2008 account value was on contracts with no living benefit, and 43% on contracts with guaranteed lifetime withdrawal benefit (GLWB) or guaranteed minimum income benefit (GMIB) riders, by 2014 the proportions were 25% and 69%, respectively. The proportion of exposure has remained roughly the same in subsequent years.

  • In this study for the first time, Ruark benchmarked VA mortality against the 2012 Individual Annuity Mortality (IAM) Basic table with projection scale G2. The 2012 IAM Basic with G2 projection is under consideration as the standard for calculating insurers' reserve and capital requirements for variable annuities. Ruark also benchmarked VA mortality against its proprietary 2015 Ruark Variable Annuity Mortality (RVAM) table, which was developed from the results of the prior study. Standard industry mortality tables systematically overstate or understate various age-sex cohorts, even when they closely approximate aggregate mortality. In contrast to the 2012 IAM table, which departs as much as 18% from experience at central ages and over 45% for younger female cohorts, the 2015 Ruark VAM table diverges by less than half those amounts.

  • Variable annuity mortality continues to evolve through time. Changes in the business mix, and mortality improvement since the prior study, have led to changes across age-sex cohorts as well as a decline in the absolute level of VA mortality.
  • A distinct hierarchy in mortality across living benefit types is apparent. Lowest mortality is found on GLWB and GMIB riders. Guaranteed minimum withdrawal benefit (GMWB) and guaranteed minimum accumulation benefit (GMAB) riders fall in a middle group, with average mortality. Those contracts without living benefits exhibit above-average mortality. This hierarchy is consistent with a pattern of policyholder selection on the basis of longevity benefits. A GLWB rider allows the policyholder to make regular withdrawals, up to a specified amount, until death – even after exhausting their account value. This benefit is most valuable to policyholders with an expectation of favorable longevity. Above-average mortality on contracts without living benefits is consistent with the intuition that less-healthy VA buyers would rationally forego a financial transaction that features such benefits -- and instead purchase a product whose main feature is a death benefit. Analysis by contract duration indicates that the selection effects wear off over time, similar to traditional life insurance products.

  • The extent to which mortality differs by living benefit type suggests that utilization of living benefits might reveal selective pressures as well, and Ruark observes that withdrawal benefit mortality differs considerably by withdrawal history. GLWB contracts that have taken no withdrawals have low mortality; those that have taken regular income withdrawals have intermediate mortality; and those that have taken excess withdrawals exhibit above-average mortality. Ruark’s conjecture is that these differences reflect policyholders’ different income and liquidity needs in response to conditions that correlate with higher mortality.

  • The effects of policy size are apparent only when results are segregated by living benefit type. Among more generous living benefit types, mortality declines with increased account value, with a difference of 7 percentage points between the smallest and largest contracts. Among older living benefit forms (GMWB and GMAB), the relationship is flat. And among contracts with no living benefits, mortality increases with account value, by 15 percentage points from the smallest to the largest contract size groups. Ruark believes that more affluent policyholders are generally more financially savvy and have greater access to expert financial advice, which translates to more savvy purchase and benefit retention behavior.

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

platform_ruarkbg

 

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

 

va-fia_timeline

 

Would you like to learn more about implementation and pricing?

Contact: 

Timothy Paris
860.866.7786