timothy c. pfeifer, fsa, maaa pfeifer advisory llc may 21, 2012
TRANSCRIPT
Timothy C. Pfeifer, FSA, MAAAPfeifer Advisory LLC May 21, 2012
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I. Declared Rate Fixed Deferred Annuities
II. Fixed Indexed Annuities
III. Single Premium Immediate Annuities
IV. Deferred Income Annuities
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• 18% of DRFDA sales were in products with MVAs
• It should be noted that a quarter of indexed annuity sales are directed to declared rate accounts
• Banks and S&Ls sold 54% of non-MVA fixed and 22% of MVAs
Combined MVA and non-MVA sales ($34B) in 2011 lowest
in last ten years
• Lower compensation
• Eliminate automatic ROP
• Cut renewal credits to minimums
• First year bonuses
• Invest in longer durations
Prevalent reactions to low interest rate environment:
Over half (58%) of non-MVA fixed sales in 2011 involved IGPs of
more than one year (3- and 5-year dominate)
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Average industry crediting rate about 2.8% for last
six months
Heaped surrender charges (1st year SC% >> years of
SC)RULE of THUMB: 1% surrender charge
in one year worth one basis point
Greater use of limited market value adjustments (reserve and capital relief)
Some increased use of Bailout Provisions
Limited number of LTC Rider provisions
– modest sales
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Part 1
• Approximately 45% market share last two years
• 7% from banks in 2011
• Little securities regulation chatter
• Focus is on income sale (GLWB with attractive BB roll-ups)
• Caps/Participation rates fallen to weak levels (e.g., caps of 3%)
• Commissions down slightly, but still on high-end
• Focus on simple crediting approaches and S&P index due to options budgets
Current Profile:
The Strong Sector of the
Fixed Annuity Market
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Part 2
• For the first time, specific guidance on illustrating FIA returns
• Backcasting based on ten-year period (last 10, best 10 out of 20, worst 10 out of 20)
• New indexes may not be illustrated• State adoptions
NAIC Annuity Disclosure Model
• Death benefit enrichment, including DFD treatment
• Enhanced guaranteed income under GLWB for LTC, etc.
• Uncapped designs are of significant interest
• Binary/Performance Trigger for banks, simple sale
Strong Design Creativity
Key Elements in the Indexed Annuity World
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Part 3
The Future of FIAs
Indexed SPIAs(finally!)
More efficient hedging/option
budget
Lower average compensation
More multi-year terms
All of this assumes a continued low interest rate environmentAll of this assumes a continued low interest rate environment
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• Sales reached $7.7B in 2011
• Sales up 9% over 2010
• 16 carriers wrote >$100 Million
Continued growth and traction, despite low
interest rates
• Favorable demographics• Education of reps, customers• Appealing ALM• Favorable strain characteristics
Drivers of Sales
• Capital burden on SPIAs• Expenses allocated to SPIAs• Liquidity features
What Differentiates Carriers?
Still very price driven, commodity-like business
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One main character success story: Captive producers, large SPIA player
Four other carriers in market: Little success, little effort (in some cases)
Better attempts at packaging as part of complete retirement plan, evaluate on “full IRR” basics, incorporating survivorship benefits
Future:
WHY? WHY?
So far, More Smoke Than
Fire
Low ratesInadequate
liquidityLearning curve in how
to package, sell
