Session 97 PD, Variable Annuity Guaranteed Living Benefit Utilization Studies and Benefit Utilization in Fixed Indexed Annuities

Transcription

1 Session 97 PD, Variable Annuity Guaranteed Living Benefit Utilization Studies and Benefit Utilization in Fixed Indexed Annuities Moderator: Patrick David Nolan, FSA, MAAA Presenters: Jafor Iqbal Joseph E. Montminy, ASA, MAAA Timothy S. Paris, FSA, MAAA SOA Antitrust Disclaimer SOA Presentation Disclaimer

2 Variable Annuity Guaranteed Living Benefit Utilization Study Owner Experience in 2014 Session 97 - Society Of Actuaries Annual Meeting October 25, 2016 Joe Montminy, LIMRA Secure Retirement Institute Jafor Iqbal, LIMRA Secure Retirement Institute

3 AGENDA 01 ABOUT THE STUDY WITHDRAWAL BEHAVIOR GMIB ANNUITIZATION & SURRENDER BEHAVIOR 2

4 LIMRA/SOA Variable Annuity GLB Utilization Study 2014 Experience 21 companies 4.9 million contracts with GLB riders 68% of total VA with GLB rider sales in % of total VA assets with GLB riders 3

5 66% of retail VA assets now have a GLB rider 2008 $272 B 2010 $521 B Assets in Retail Variable Annuities With GLBs (in billions) 2012 $661 B 2014 $843 B 2015 $836 B Note: Retail = VA with GLB + VA without GLB; Excludes individual annuities in employer plans. Source: U.S. Individual Annuity Yearbook 2015 and Quarterly Variable Annuity Guaranteed Living Benefit Election Tracking Survey, LIMRA Secure Retirement Institute,

6 About the VA GLWB Owners GLWB Owners in 2014 Based on 2,847,544 contracts issued by 19 companies Baby Boomers (50-68) Half of VA GLWB buyers are leading edge Boomers, age 59 to % IRA/Qualified Contracts Average age of IRA buyers: 62; average age of NQ buyers: 64 Benefit Base > Contract Value 66 % BOY 2014, the ratio of CV to BB: 97.; Average difference between CV and BB: $3,500. Average contract value: $137,642 Median contract value: $95, % 30 % Joint Lives Had payouts based on joint lives. 5

7 Withdrawal Behavior Qualified status Owner age First withdrawals Systematic/occasional withdrawals Relationship to maximum withdrawals BB to CV ratio (In-the-money) 6

8 Qualified status and age have the biggest influence on GLWB owner withdrawal behavior Percentage of VA GLWB Owners Taking Withdrawals in 2014 Number of IRA owners 100,000 Number of IRA Owners Percent Taking Withdrawals Age 69 Percent of owners taking withdrawals 90% Number of NQ contracts 100,000 Number of Nonqualified GLWB Contracts Percent Taking Withdrawals Age 69 Percent of owners taking withdrawals 90% 75,000 63% 60% 75,000 60% 50,000 32% 30% 50,000 26% 30% 25,000 25,000 6% 4% - 0% or Age of Owner older - 0% or older Age of Owner Note: Based on 2,452,104 GLWB contracts issued before 2014 and still in force at EOY

9 Qualified Status and age have similar influence on withdrawal behavior of other VA GLB Riders Percentage of Other GLB Owners Taking Withdrawals in 2014 GMIB Owners GMWB Owners GMAB Owners 100% IRA Nonqualified 80% 60% 40% 20% 0% Under Age Age of Owners Under Age Age of Owner Under age Age of Owner Note: Based on 1,435,349 GMIB contracts issued before 2014 and still in force at EOY Percentages refer to the number of contracts in each age group that had partial withdrawals during Note: Based on 191,177 GMWB contracts issued before 2014 and still in force at EOY Note: Based on 261,042 GMAB contracts issued before 2014 and still in force at EOY

10 Majority of qualified owners start their first withdrawals upon attaining Age 70 and 71 Age at Purchase of IRA VA GLWB in % 4% 60 7% 7% 6% 8% First Withdrawals started at Attained age: % 7% 4% 4% 7% 6% 6% 6% 8% 7% 9% 6% 8% 8% 6% 4% 12% 7% 9% 7% 7% 11% 7% 7% 9% 7% 6% 17% 11% 8% 8% 8% 6% 6% 19% 1 13% 9% 7% 7% 6% 19% 17% 4% 16% 8% 6% 8% 20% 18% 3% 1 7% 7% 23% 20% 6% 3% 3% 16% 9% 9% 33% 8% 4% 18% 2 9% 21% 6% 4% 28% 32% 10% 3 27% 4% 9% First withdrawals in 1 st year (2007) First withdrawals in 2 nd year (2008) First withdrawals in 3 rd year (2009) First withdrawals in 4 th year (2010) First withdrawals in 5 th year (2011) First withdrawals in 6 th year (2012) First withdrawals in 7 th year (2013) First withdrawals in 8 th year (2014) 37% 2 3 4% 29% 40% 75 3% 3% 4% 10% 4% 2 37% 76 3% 3% 4% 10% 4% 28% 77 2% 3% 4% 4% 10% 78 2% 3% 4% 9% 79 2% 2% 80 2% 2% 4% % 3% 2% 9

11 Use of systematic withdrawals (SWP) indicates owners intention to utilize guaranteed benefits 100% Percentage of GLWB Owners Taking Withdrawals Through SWP 84% % 4 41% 82% Nonqualified 74% IRA USE of SWP: GLWB 76% GMIB 7 GMWB 78% 2 0% Age < Age of Owner Note: Based on 598,413 GLWB contracts that were issued before 2014, still in force at EOY 2014, and had withdrawals in

12 Average Annual Systematic Withdrawal Amount 2014 VA GLB owners draw $8,200 $8,900 in annual guaranteed withdrawals. $8,167 Per Year $8,900 Per Year $8,578 Per Year GLWB Based on 456,603 GLWB contracts GMIB Based on 305,740 GMIB contracts GMWB Based on 69,036 contracts Source: Guaranteed Living Benefits Utilization: 2014 Experience, LIMRA Secure Retirement Institute, VA-GLWB average withdrawals are based on 456,603 VA-GLWB contracts issued before 2014 and taking only systematic withdrawals in GMIB and GMWB average withdrawal amounts are based on 305,740 GMIB and 69,036 GMWB contracts issued before 2014 and taking only systematic withdrawals in

13 8 in 10 GLWB owners withdrew income that was below or close to the maximum amount. GLWB Actual Withdrawals as a Percentage of Benefit Maximum Percent of Owners Taking Withdrawals 150% to <200% 3% 200% or more 110% to <150% 10% 8% Under to <90% 10% 90% to <110% 54% Note: Based on 581,851 GLWB contracts issued before 2014 and remaining in force at EOY 2014 with withdrawals in

14 Owners age 65 and older seldom take withdrawals that exceed the benefit maximum amount 6 in 10 owners under age 60 Withdrawals exceeded 150% or more of the benefit maximum Percentage of Owners Taking Withdrawals by Age Withdrawals as a Percent of Maximum Annual Benefit Amount Percent of Owners 100% 80% 60% 40% 20% 0% < OR OLDER Current Age of Owner Under 7 7 to <90% 90% to <110% 110% to <150% 150% to <200% 200% or more Note: Based on 581,661 GLWB contracts issued before 2014, still in force at EOY 2014, and with withdrawals in

15 SWP Owners are More Likely to Remain within the Benefit Maximum. Percentage of Owners Taking 125 Percent or more of the Benefit Maximum 86% 87% 80% 6 50% 23% 22% 18% 11% Systematic Withdrawals (SWPs) Occasional Withdrawals 31% 26% 2 8% 10% 8% 8% Under to to to to to to or older Note: Based on 569,404 GLWB contracts issued before 2014, still in force at EOY 2014, with withdrawals in

16 No perceptible impact on GLWB withdrawals from contracts being in-the-money. Age <60 Age Age 70 or older Average withdrawal % by Age Band 53% 48% 47% 48% 50% 39% 18% 18% 18% 18% 18% 19% 6% 4% 4% 4% Percent of Contracts in-the-money at BOY: Avg. CV BB difference: % 73% 62% 92% 79% 48% -$30,000 -$11,100 -$6,100 -$16,300 -$12,200 -$3,500 Note: In-the-money = BB>CV 15

17 Annuitization and Surrender Behavior GMIB annuitization Contract duration Presence of surrender charge Withdrawals systematic and occasional Withdrawals relative to maximum benefit 16

18 Annuitization rates for GMIB contracts are low GMIB Contracts Annuitized in 2014, by Benefit Maturity Percentage of Contracts Annuitized in % 0.7% 0.4% 0.6% 0.4% 1.0% Before Number of contracts eligible: 81,172 31,545 27,597 69,904 85,086 83,132 Benefit Maturity Year & Number of Contracts Eligible Note: Based on 378,436GMIB contracts issued before 2014 and reaching benefit maturity in or before

19 On average, GMIB life-only payout is about 16% higher than corresponding SPIA payout. Average Ratio of GMIB Payout to SPIA Payout Ratio of GMIB Payout to SPIA Payout, for Life-Only Payouts by all Benefit Maturity Years Male Female Current Age of Owner Note: Based on 258,456 GMIB contracts in force at the end of

20 Surrender rates in VA GLB contracts are low VA Surrender Rates in % 8.2% % 4.3% VA with GLB VA without GLB GLWB GMIB GMWB GMAB Note: Surrender rates are based on contracts issued before 2014 Sources: Guaranteed Living Benefit Utilization Study 2014 Owners Experience, LIMRA SRI, 2016, and LIMRA s U.S. Annuity Persistency Survey. 19

21 Expiration of waiting periods influences GMIB surrender rates GMIB Surrender Rates in 2014 by Quarter and Year of Contract Issue Contract Surrender Rate Cash Value Surrender Rate Expiration of 10-year waiting periods 8.6% 10.0% Expiration of 7-year surrender charge and 7-year waiting period 7.1% 7.8% 8.0% 6.0% 4.0% 4.0% 2.0% Q Q Q Q Q Quarter of Issue Q Q Q % Q or earlier Note: Based on 909,934 GMIB contracts issued in 2008 or earlier. We have not shown some values in order to preserve confidentiality and avoid revealing company-specific information, as data in those characteristics were heavily weighted for one company or a very limited number of participating companies. 20

22 Noticeable increase in GLWB surrender rates at the expiration of L- & B-share CDSC period GLWB Surrender Rate by Quarter of Contract Issue Percentage of contracts fully surrendered Unweighted Weighted by BOY Contract Value 10.2% Expiration of 7-year surrender charge % Expiration of 4-year surrender charge 4.7% 8.0% 6.0% 4.0% 2.0% % 2004 Quarter of Issue Note: Based on 2,683,418 GLWB contracts issued in 2014 or earlier. 21

23 GLWB Owners Taking Systematic Withdrawals are Less Likely to Surrender 12.7% 11.6% GLWB Contract Surrender Rates by Withdrawal Methods Percentage of Contracts Fully Surrendered 9. Non-systematic Withdrawals Systematic Withdrawals 7.8% 4.1% 3.7% 4.8% 4.9% 5.3% % 2.3% 2.3% 2.4% or older Current Age of Owner Note: Based on 640,582 GLWB contracts issued before 2014 that also had withdrawals in

24 Withdrawing Significantly less or more than the Benefit Maximum Increases likelihood of surrender Percentage of GLWB Contracts Fully Surrendered by Benefit Maximums All Ages 10.9% 7.3% 3.0% 0.8% 2.3% 3. Under 7 7 to <90% 90% to <110% 110% to <150% 150% to <200% Withdrawals in relation to Benefit Maximum Allowed 200% + Note: Based on 607,130 GLWB contracts issued before 2014 that also had withdrawals in

25 Sub-optimum GLWB withdrawals indicate increased surrenders in all age groups 15.0% Percentage of GLWB Contracts Fully Surrendered by Benefit Maximums by Age Groups Under 7 7 to <90% 90% to <110% 110% to <150% 150% to <200% 200% or more 10.0% 5.0% 0.0% Under to to to to or older Current Age of Owner Note: Based on 607,130 GLWB contracts issued before 2014 that also had withdrawals in

26 Understanding age and withdrawal activity helps predict likelihood GLWB owner may surrender GLWB Contract Surrender Rate by Owners Taking Withdrawals in 2014 Percentage of contracts fully surrendered Took withdrawals in % 11.4% 4% of all contracts Did not take withdrawals in % 32% of all contracts 43% of all contracts 4.8% 3.8% 4.7% 5.2% 5.6% 21% of all contracts 3.8% 2.9% 2.9% 3.4% 3.4% 2.8% 2.8% 2.9% Under to to to to to to or older Current Age Note: Based on 2,564,527 GLWB contracts issued before

27 Key Takeaways from VA GLB Utilization Study Older qualified owners are taking withdrawals Owners primarily take withdrawals using SWPs Most SWP users and older owners take withdrawals within the benefit maximum Surrender rates are low for GLWB/GMIB contracts Owners using SWPs or withdrawals within the benefit max. have lower surrender rates regardless of age Surrender rates among owners who haven t started withdrawals are low. 26

28 For more information, please contact Thank you Joseph Montminy (860) Jafor Iqbal (860) LIMRA Secure Retirement Institute 27

29 Timothy Paris, FSA, MAAA Session 097 GLWB Utilization in Fixed Indexed Annuities and Behavioral Analytics October 25, 2016

30 FIA Industry Experience 2

31 Study Basics Study period Jan 2007 through Sep 2015 Included full contract years only Exposure of 8.6 million contract years and 2.6 million years with withdrawals from 12 companies Studied both withdrawal frequency and amount 3

32 FIA GLWB Utilization Headlines Withdrawal frequencies vary by the presence of a lifetime withdrawal feature and a contract s withdrawal state Age and tax status are the key drivers Contracts with a GLWB rider show a lack of efficiency in amounts withdrawn The incidence of turning on lifetime income is very low 4

33 GLWB State Withdrawal Frequency None (N) Pre-Income (L) Pre-Inc Comm (L-start) Income (W) 5

34 Key Factors: Age & Tax Status Without GLWB Withdrawal Frequency Total Non-Qualified Total Qualified < Attained Age Group 6

35 Results by Company Without GLWB Normalized by Age & Tax Status Withdrawal Frequency 7

36 Withdrawal Amount Distribution All Ages Excess Less Than Full Full 8

37 Withdrawal Amount Distribution Ages Excess Less Than Full Full 9

38 Withdrawal Amount Distribution Ages Excess Full Less Than Full 10

39 Results by Duration Normalized for Age & Tax Status No GLWB GLWB Withdrawal Frequency Duration 11

40 Results by Company With GLWB Normalized by Age & Tax Status Withdrawal Frequency 12

41 GLWB Income Commencement Withdrawal Frequency Total Non-Qualified Total Qualified < Attained Age Group 13

42 GLWB Income Commencement Normalized for Age & Tax Status Withdrawal Frequency Calendar Quarter 14

43 GLWB Income Commencement All Ages Excess Less Than Full Full 15

44 GLWB Income Continuation Total Non-Qualified Total Qualified Withdrawal Frequency Attained Age Group 16

45 GLWB Income Continuation All Ages Excess Less Than Full Full 17

46 Behavioral Analytics 18

47 Interpreting Experience Data Translating to assumptions is very difficult using traditional methods! Avoid missing important factors? Adequacy of company-level data? Interactions between factors? Avoid double counting? Changes over time? Process transparency and consistency? 19

48 Goodness of Fit Predictive Power 20

49 Factor Exploration 21

50 Aikake s Information Criterion Actual-to-Expected Ratios Expert Judgment Model Selection Much More 22

51 Aikake s Information Criterion AAAAAA = 2kk 2ln(LL) Metric to compare relative quality of alternative models. Lower is better. Rewards goodness of fit (L), but with penalty for more model factors (k) to mitigate risk of overfitting the model on train data. 23

52 Actual-to-Expected Ratios AA/EE Develop E using train data, compare to A from test data Examine in aggregate, by cohorts, and over time Look at range of outcomes and tails 24

53 Expert Judgment Business context, sensibility, materiality, parsimony More data usually beats more complex models Let the data speak Use simples models for complex data, and complex models for simple data 25

54 Industry Data Traditional Analysis Statistical Techniques Expert Judgment 26