Trends in Annuities. Products, Riders, and Reinsurance. Tiffany Wills, FSA, CERA, MAAA Assistant Vice President and Actuary

Transcription

1 Trends in Annuities Products, Riders, and Reinsurance Tiffany Wills, FSA, CERA, MAAA Assistant Vice President and Actuary SEAC Conference June 2016

2 Topics of Discussion The Annuity Market Living Benefit Riders The Reinsurance Market

3 Annuity Market Trends Historical Annuity Sales 1

4 Annuity Market Trends Annuity Sales Headlines 2

5 Annuity Market Trends 1Q 2016 Annuity Sales 3

6 Annuity Market Trends Changes in Fixed Index Annuities Index options Fixed rate guarantees Liquidity options Bonuses Charge structures Living Benefit riders Death Benefit riders 4

7 Annuity Market Trends Drivers of Change 10/10 rule 2012 IAR table Actuarial Guidelines Low interest rates Equity market volatility Assumptions Competition Reinsurance market Fiduciary Rule 5

8 Annuity Market Trends Where do we go from here? 6

9 Living Benefit Riders General information Basic FIA GLWB: Embedded in contract or an elected rider A notional account accumulates at specified rate(s) Rider charge between bps Benefits based on notional account at time of utilization Benefits are guaranteed for life and only reduced for excess withdrawal Thousands Sample $100k FIA with GLWB (50) (100) Account Value Notional Value Vast majority of FIA products sold today have a GLWB available More than half of FIA sales elect the GLWB, although election rates are declining Typically available through all distribution channels; highest election through agent channels Subject to Actuarial Guideline 33 and 35, unless permitted practice to use AG43 7

10 Living Benefit Riders Impact of GLWBs $100k policy At end of first year Base contract w/ GLWB w/ GLWB 2012 IAR table w/ GLWB (adj) 2012 IAR table w/ GLWB (adj) 2012 IAR table w/ GLWB (adj) 2012 IAR table Account Value 102,218 GLWB basics NA GLWB Notional NA 102,218 7% roll up Standard benefits 100 bps charge 107, ,218 7% roll up Standard benefits 100 bps charge 107, ,959 7% roll up Standard benefits 120 bps charge 107, ,218 6% roll up Standard benefits 100 bps charge 106, ,218 6% roll up Benefits -25 bps 100 bps charge 106,000 Cash Value 86,019 86,019 86,019 85,802 86,019 86,019 Statutory Reserve 86,019 92, , ,038 95,932 92,832 Stat Rsv to CSV 100% 108% 122% 122% 112% 108% Considerations: GLWB expected to be profitable, but increased capital strain compared to the base contract The 2012 IAR table increases reserves considerably on the same GLWB Increased rider charge may offset cost of capital, but has trivial impact on reserves Reduction in policy benefits returns capital position, but makes product less attractive 8

11 Living Benefit Riders Trends in GLWBs Bonuses Roll up rates Roll up periods Benefit factors Benefit options Rider charge Enhancements 9

12 The Reinsurance Market Types of Annuity Reinsurance Traditional Reinsurance Coinsurance YRT Longevity Swap Captive Arrangements Financial Reinsurance Capital Relief Excess Reserve Financing New Business Financing Surplus Stabilization Liquidity Facility 10

13 The Reinsurance Market Considerations when using Reinsurance Product Type Desired Retention Leverage Key Profit Metrics Risk Transfer Tax Impact Internal Expertise Regulators Reinsurance Cost Cost of Capital 11

14 The Reinsurance Market Financial Reinsurance landscape Post-crisis focus rebuilding capital positions Current focus optimizing returns on capital Annuity writers are being pushed more now than ever to find ways to be competitive in the challenging interest rate environment Many companies are currently using or actively pursuing Financial Reinsurance Improve profit metrics Enhance products Increase sales Stabilize surplus Improve ratings For many companies, the need for reinsurance has less to do with reducing capital and more to do with capital efficiency! 12

15 The Reinsurance Market Financial Reinsurance Example: New Business & Excess Reserve Financing Example of Financial Reinsurance impact on $1B of FIA sales with GLWB rider Balances for $1 B of Premium First Year (millions) Before Reinsurance After Reinsurance Millions 1, Policyholder Deposits Distributable Earnings $1,000 $1,000 $(70) $(25) Profit Metrics Before Reinsurance After Reinsurance Gross Reserve Net Reserve Cash Value IRR 12-16% 15-25% ROE 10-15% 13-20% ROA % % Cost of capital savings is equivalent to earning an additional bps of spread 13

16 The Reinsurance Market Financial Reinsurance Example: New Business & Excess Reserve Financing $100k policy At end of first year Base contract w/ GLWB w/ GLWB 2012 IAR table w/ GLWB 2012 IAR table Rsv & NB Fin Account Value 102,218 GLWB basics NA GLWB Notional NA 102,218 7% roll up Standard benefits 100 bps charge 107, ,218 7% roll up Standard benefits 100 bps charge 107, ,218 7% roll up Standard benefits 100 bps charge 107,000 Cash Value 86,019 86,019 86,019 86,019 Statutory Reserve 86,019 92, ,352 81,718 Stat Rsv to CSV 100% 108% 122% 95% Comments: Some cost of capital savings allocated to making products consistent with pre-2012 IAR Remaining savings can be allocated to improvement in profit metrics or increasing commissions Vast majority of operating profits retained by company 14

17 Thank you for your time! Tiffany Wills, FSA, CERA, MAAA AVP, Actuary, Financial Solutions Hannover Life Reassurance Company of America, 200 S. Orange Ave, Suite 1900, Orlando FL Office , Mobile

18 Disclaimer This presentation does not address the investment objectives or financial situation of any particular person or legal entity. Investors should seek independent professional advice and perform their own analysis regarding the appropriateness of investing in any of our securities. While Hannover Re has endeavoured to include in this presentation information it believes to be reliable, complete and up-to-date, the company does not make any representation or warranty, express or implied, as to the accuracy, completeness or updated status of such information. Some of the statements in this presentation may be forward-looking statements or statements of future expectations based on currently available information. Such statements naturally are subject to risks and uncertainties. Factors such as the development of general economic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. This presentation serves information purposes only and does not constitute or form part of an offer or solicitation to acquire, subscribe to or dispose of, any of the securities of Hannover Re. Hannover Rück SE. All rights reserved. Hannover Re is the registered service mark of Hannover Rück SE.