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Overview of 2020 FIA Industry Experience Studies
Behavioral Analytics Advisory CouncilMay 20, 20202:00 – 3:00pm Eastern
Timothy Paris, FSA, MAAAChief Executive OfficerRuark Consulting [email protected]
Specialopen edition
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DisclosuresThis report is for the exclusive use of the Ruark client named herein, and is not intended for general circulation or publication, nor is it to be reproduced, quoted or distributed for any purpose without the prior written permission of Ruark. There are no third party beneficiaries with respect to this report, and Ruark does not accept any liability to any third party. Information furnished by others, upon which all or portions of this report are based, is believed to be reliable but has not been independently verified, unless otherwise expressly indicated. Public information and industry and statistical data are from sources we deem to be reliable; however, we make no representation as to the accuracy or completeness of such information.
The findings contained in this report may contain models, assumptions, or predictions based on current data and historical trends. Any such predictions are subject to inherent risks and uncertainties, as future experience may vary from historical experience. The client should consider the applicability of these models, assumptions, and predictions for the future, and whether additional margins for conservatism should be included. Ruark accepts no responsibility for actual results or future events. The opinions expressed in this report are valid only for the purpose stated herein and as of the date of this report. No obligation is assumed to revise this report to reflect changes, events or conditions, which occur subsequent to the date hereof. All decisions in connection with the implementation or use of advice or recommendations contained in this report are the sole responsibility of the client. This report does not represent investment advice nor does it provide an opinion regarding the fairness of any transaction to any and all parties.
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Agenda
Introduction
Surrenders
Partial withdrawals and income utilization
Mortality, including new first-ever table
Discussion
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Why is this important?
Adverse and volatile capital
marketsGuarantee
values increaseSurrender rates
decrease
Guaranteed income
utilization increases
Financial strain for issuers and
reinsurers
Multi-trillion dollar market in US and abroad
Investments in risk management should be more important than ever
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Does any of this sound familiar?
Our block is not large enough to have highly credible
experience dataWe have a lot of data, but not
in certain key areas
It is really difficult to translate experience data to assumption models
Can we tell the difference between noise and changes in
underlying trends?
Our CFO wants more analysis so that we can explain our
results relative to peersWhat will it take for us to stop
having surprises?
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Introduction
We aim to be the platform and industry benchmark for principles-based insurance data analytics and risk management
Industry experience studies of policyholder behavior and mortality since 2007, now with about 70% industry coverage for VA and FIA and over $1 trillion account value
Experience data
Industry and company studies
Third-party assumption review
Model development and predictive analytics
Process management
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7
Our most common services
Standard Model Development
Premium
Experience study reportIndustry tables and graphsCompany tables and graphsBenchmarkingPivot table tool
Customizedusing relevant industry data,
credibility theory, and predictive
analytics
Quantifiablyimprove your
models and risk profile
![Page 8: l n Overview of 2020 FIA Industry Experience Studies · EquiTrust Fidelity & Guaranty Life Genworth Global Atlantic Great American* Guggenheim Lincoln Nassau Re Nationwide Pacific](https://reader036.vdocument.in/reader036/viewer/2022071009/5fc72d6f8cb41e505d5533c2/html5/thumbnails/8.jpg)
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Recent developments
New VA and FIA mortality tables –splits for benefit type and durational
anti-selection
Stat and GAAP – raising the bar for data analysis and policyholder
behavior modeling
How much is 1% A/E improvementworth to you?
Case study – modeling FIA GLIB income commencement
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VA reminder – submit order forms by June 30
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FIA Participating Companies
AIG
American Equity
Athene
Brighthouse
EquiTrust
Fidelity & Guaranty Life
Genworth
Global Atlantic
Great American*
Guggenheim
Lincoln
Nassau Re
Nationwide
Pacific Life
Prudential*
Sammons
Security Benefit
Total account value 9/30/2019: $296 billion
* New participant
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FIA Data
Jan 2007 through Sep 20194 million policyholders
IndustryContract Years(m)
Activity ($m)
Surrenders 23.5 54,841Withdrawals (Base contracts) 20.3 41,608
Withdrawals (GLIB) 7.4 5,399
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FIA Data Highlights
+21% total exposure years
Double the exposure years for GLIB
contracts past the end of the surrender
charge period
49% of exposure years in the last 12 months
are for GLIB
+39% lifetime income withdrawals
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FIA Surrenders
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0%
55%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15+Duration
4 years 5 years 7 years 8 years 9 years 10 years 12 years 14 years
Surr
ende
r Rat
eCommon pattern of surrenders based on the length of the surrender charge period
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Surr
ende
r Rat
e
0%
35%
10 ormore
9 8 7 6 5 4 3 2 1 0 -1 -2 -3 ormoreYears Remaining in Surrender Charge Period
15
Combine into single metric:Years remaining in the surrender charge period
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0%
30%
10 ormore
9 8 7 6 5 4 3 2 1 0 -1 -2 -3 ormore
Surr
ende
r Rat
e
Years Remaining in Surrender Charge Period
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Without Living Benefit
LB Income Commenced
LB Income Not Begun
With LB
Living benefits give policyholders an incentive to persist
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Surr
ende
r Rat
e
0%
30%
10 ormore
9 8 7 6 5 4 3 2 1 0 -1 -2 -3 ormore
ITM 15%+ ITM 5 - 15% ITM >0 -5% ATM or OTM
Nominal moneyness presents a muddled picture…
Years Remaining in Surrender Charge Period
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Surr
ende
r Rat
e
0%
30%
10 ormore
9 8 7 6 5 4 3 2 1 0 -1 -2 -3 ormore
ITM ATM OTM 5 - 25% OTM 25+%Years Remaining in Surrender Charge Period
…but actuarial moneyness is clearer
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0%
10%
Less than 4.5% 4.5 - 5.0% 5.0 - 5.5% 5.5 - 6.5% More than 6.5%Moody's BAA Rate
0 - 2% 2 - 4% 4 - 6% 6 - 8% 8+%
Surr
ende
r Rat
e
Fixed market alternatives appear to influence behavior
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Normalized for living benefit presence/utilization and years remaining in surrender charge period
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0%
1%
2%
3%
4%
5%
6%
0%
15%
Q1 2007 Q3 2008 Q1 2010 Q3 2011 Q1 2013 Q3 2014 Q1 2016 Q3 2017 Q1 2019
10-Y
r Tre
asur
y Ra
te
Calendar Quarter
Normalized for living benefit presence/utilization and years remaining in surrender charge period
Positive Negative 10-Yr Treasury
Surr
ende
r Rat
eMVA should keep policyholders whole, but policyholders
behave more like it’s a bonus or penalty…
20
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-80%
0%
80%
-15%
0%
15%
Q1 2007 Q3 2008 Q1 2010 Q3 2011 Q1 2013 Q3 2014 Q1 2016 Q3 2017 Q1 2019
S&P
500
Quar
terly
Dra
wdo
wn
Normalized for living benefit presence/utilization and years remaining in surrender charge period
Positive MVA surrender rate (LHS) S&P 500 quarterly drawdown (RHS)
Surr
ende
r Rat
e
…especially when equity market returns are negative
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0%
40%
10 ormore
9 8 7 6 5 4 3 2 1 0 -1 -2 -3 ormore
under $50,000 $50,000-100,000 $100,000-250,000 $250,000-500,000 $500,000-1,000,000 >=$1,000,000
Surr
ende
r Rat
e
Years Remaining in Surrender Charge Period
Largest and smallest contracts behave differently
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Normalized for living benefit presence/utilization
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0%
65%
Q1 2007 Q3 2008 Q1 2010 Q3 2011 Q1 2013 Q3 2014 Q1 2016 Q3 2017 Q1 2019
Normalized for living benefit presence/utilization
10 or more 7 3 0 -2
Surr
ende
r Rat
e
Post-surrender charge rates have climbed in recent years
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Calendar Quarter
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-100%
0%
100%
1* 2 3* 4* 5 6 7 8 9 10 11 12 13 14 15 16 17
Devi
atio
n fro
m In
dust
ry A
vera
ge
Company
Surrender Rate: Normalized for years remaining, GLIB presence/utilization, contract size, credited rate, and market rate
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Company benchmarking
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FIA Partial Withdrawalsand Income Utilization
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Attained Age
0%
12%
<50 50-59 60-64 65-69 70-79 80+
QualifiedNon-QualifiedW
ithdr
awal
Freq
uenc
y
26
GLIB income commencement rates are low and appear unaffected by RMDs
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Duration Since Living Benefit Waiting Period Ends
0%
12%
1 2 3 4 5 6 7 8 9 10 11+
GLIB: Normalized for age and tax status
Commencement rates reflect immediate income takers
27
With
draw
al Fr
eque
ncy
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With
draw
al Fr
eque
ncy
Greater commencement rates when the value is higher
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0%
12%
ITM 25+% ITM 15 - 25% ITM 5 - 15% ITM 0 - 5% ATM OTM 0 - 5% OTM 5 - 15% OTM 15+%
Nominal Moneyness
GLIB Income Commencement: Normalized for age, tax status, and duration since living benefit waiting period ends
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0%
12%
1 2 3 4 5 6 7 8 9 10 11+
GLIB Income Commencement: Normalized for age and tax status
Optional Rider Embedded Benefit
Duration Since Living Benefit Waiting Period Ends
With
draw
al Fr
eque
ncy
Higher commencement rates for optional riders than embedded guarantees
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Once benefits start, most policyholders continue them
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0%
100%
Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017 Q2 2018
Calendar Quarter
Withdrawal Continuation - GLIB
Less Than Full Withdrawals Full Withdrawals Excess Withdrawals
With
draw
al Fr
eque
ncy
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0%
100%
<50 50-59 60-64 65-69 70-79 80+
No GLIB
Qualified
Attained Age
31
Age and tax status still the most significant drivers of base contract free partial withdrawal frequency
Non-Qualified
With
draw
al Fr
eque
ncy
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% o
f Acc
ount
Val
ue
0%
18%
Q1 2007 Q3 2008 Q1 2010 Q3 2011 Q1 2013 Q3 2014 Q1 2016 Q3 2017
Calendar Quarter
No GLIB: Normalized for age, tax status, and duration since free waiting period ends
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Aggregate partial withdrawal amounts have been largely stable over time…
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% o
f Acc
ount
Val
ue
0%
25%
10 ormore
9 8 7 6 5 4 3 2 1 0 -1 -2 -3 ormore
No GLIB: Normalized for age, tax status, and duration since free waiting period ends
Years Remaining in Surrender Charge Period
…although free partial withdrawal amounts jump after the surrender charge period ends
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Company benchmarking
34
With
draw
al Fr
eque
ncy
0%
25%
1* 2* 3 4 5 6 7 8 9 10* 11 12 13 14 15* 16* 17
Company
GLIB Commencement: Normalized for age, tax status, duration since waiting period end, size, actuarial moneyness, and GLIB fee structure
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FIA Mortality (2018)
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Data
Jan 2007 through Sep 2017
Industry
Exposure – contract years 16,041,624Completed deaths – policy count 264,511Exposure – account value years ($m) 1,240,590Completed deaths – account value ($m) 21,020
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0%
150%
0-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90+
Actual versus 2012 IAM - Projection G2
Male Count Male Amount Female Count Female Amount Base
% o
f Tab
le
2012 IAM does not fit FIA experience very well…
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Attained Age
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…but Ruark’s proprietary table fits much better
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0%
150%
0-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90+
Actual versus Ruark VAM 2015
Male Count Male Amount Female Count Female Amount Base
% o
f Tab
le
Attained Age
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Mortality is lower where longevity benefits are greatest
39
0%
150%
With LB - Income Commenced With LB - Income Not Begun With LB - Total No Living Benefits
Actual versus Ruark VAM 2015 Normalized for age, gender, and duration
Non-qualified
Qualified Total
% o
f Tab
le
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Results by duration suggest a select-and-ultimate effect, prompting development of our first-ever FIA table in 2020
40
0%
140%
1 2 3 4 5 6 7 8 9 10+Duration
Normalized for age and gender
2012IAM-G2 2012IAM-G2 Norm Ruark VAM 2015 Ruark VAM 2015 Norm Base
% o
f Tab
le
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Company benchmarking of A/E ratios
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0%
140%
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Company
Normalized for age, gender, duration, tax status, and living benefit
vs. 2015 RVAM vs. 2012IAM-G2 Base
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42
Our most common services
Standard Model Development
Premium
Experience study reportIndustry tables and graphsCompany tables and graphsBenchmarkingPivot table tool
Customizedusing relevant industry data,
credibility theory, and predictive
analytics
Quantifiablyimprove your
models and risk profile
Readily available for 2020 FIA studies
![Page 43: l n Overview of 2020 FIA Industry Experience Studies · EquiTrust Fidelity & Guaranty Life Genworth Global Atlantic Great American* Guggenheim Lincoln Nassau Re Nationwide Pacific](https://reader036.vdocument.in/reader036/viewer/2022071009/5fc72d6f8cb41e505d5533c2/html5/thumbnails/43.jpg)
Discussion
43