Ruark Consulting, LLC today released the results of its 2020 industry studies of variable annuity (VA) policyholder behavior, which include surrenders, income utilization and partial withdrawals, and annuitizations.
“We expected that 2020 behavior would be different,” said Timothy Paris, Ruark’s CEO. “By looking at industry-level data, we are better able to identify and quantify those differences – especially on current-generation products.”
Ruark’s 2020 study spanned the period from January 2008 through June 2020. The study period was designed to capture early effects of COVID-19 and related market movements. COVID-related findings include:
- Extreme market activity in the first half of 2020, and disruption to policyholders’ usual communication patterns with advisors and agents by COVID-related social distancing, appear to have affected VA surrender and income commencement behavior.
- Contracts with guaranteed lifetime withdrawal benefits (GLWB) persisted at greater rates than expected, as current-generation products exhibited greater sensitivity to 2020 market movements than they did in the past.
- Surrender rates fell uniformly on older product types in 2020; this is suggestive of a new, unique surrender regime, distinct from the regimes observed before and after the 2008 financial crisis.
- GLWB commencement rates were depressed in 2020 among contracts with the highest propensity to exercise the benefit: in-the-money contracts following the end of the deferral bonus period. Both the level and sensitivity of commencement rates were reduced.
Study data comprised 89 million years of exposure and 13.9 million policyholders from 20 participating companies, with $675 billion in account value as of the end of the study period. The study’s in-the-money exposures on GLWB contracts were 23% higher than in Ruark’s 2019 study (and 40% higher for deep in-the-money contracts). Among contracts issued since 2011, deep in-the-money exposure increased to 9% of total exposure, up from 6% in 2019. The study contained over 740,000 exposure years prior to withdrawal commencement for contract durations 11 and beyond, more than doubling the comparable exposure in Ruark’s 2019 study.
The study also includes analysis of the effectiveness of GLWB income deferral incentives; sensitivity of income commencement and surrender rates to “moneyness” of guarantees on nominal and economic/actuarial bases; efficiency of income and free partial withdrawal utilization, including systematic withdrawal programs; GMIB annuitization rates for hybrid and pro-rata designs; and much more. Detailed study results, including company-level analytics, benchmarking, and customized behavioral assumption models calibrated to the study data, 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.
This article originally appeared on Rome News-Tribune.
