Finally, some good news for annuity risk managers: A recent study by Ruark Consulting, LLC disclosed that annuitization rates on variable annuities with guaranteed minimum income benefit (GMIB) riders were lower than the industry would have estimated.
Between January 2007 and June 2012, annuitization rates on variable annuities (VAs) with GMIBs were less than 5 percent annually. This was the first time actuarial consulting firm Ruark compiled a study on GMIB annuitizations because only until recently have these policies been in force long enough to allow for annuitizations, explains Ruark vice president Richard Tucker.
“These policies were written early in the 2000s and most of the benefits had a 10-year waiting period, meaning the policyholders could not elect annuitization until 10 years had passed,” Tucker says. “Until we got enough data beyond that 10-year period, there wasn’t enough industry experience to conduct the study.”
Ruark based the study on data from seven insurance companies that contributed 600,000 contract years of exposure and 10,000 annuitizations.
Unlike guaranteed lifetime withdrawal benefits (GLWBs), which allow periodic withdrawals from the account value, policies with GMIBs must be annuitized before the income flow commences.
More conservative estimates
Without historical research to guide them, insurance risk manager’s only option is to make “educated opinions,” Tucker relates. Therefore, they would tend to be more conservation in their assumptions.
Says Tucker: “In general, those educated opinions would have been higher than what these initial results show.”