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This article had me thinking... It is about whether annuities will remain inforce, or not. The Society of Actuaries "excluded registered index-linked annuities, traditional variable annuities and non-variable indexed annuities from the study." *****So, the study was about fixed and MYG annuities.***** The article indicates that "In spite of the publicity that annuities with guaranteed living benefit riders receive, fewer than 1% of the contracts in the data submitted came with such a rider." Well, that is because less than 2% of fixed/MYG annuities even offer a Guaranteed Lifetime Withdrawal Benefit? And researchers found that "About 39% of the contracts included in the study were surrendered by their owners in the year the surrender charge expired." Maybe if insurance companies didn't drop the credited rate after surrender charges expire, this wouldn't be the case? #JustSayin Interestingly, products with MVAs were surrendered more than their non-MVA brethren, at the expiration of surrender charges. Overall, and interesting study. Thanks Allison Bell at ThinkAdvisor, for the compelling content! #SOA #Annuities #FixedAnnuities #CashSurrender #Research #Study #ThinkAdvisor #IntelRockstar https://lnkd.in/gujbU9G7
Tom LeBleu
6mo
I think a lot of the issue falls on the advisor. Those who are selling MYGAs know it is a basic sale based on rate -- akin to a CD sale -- and very few effectively follow up at the end of the guarantee period or really treat the policy like an annuity. Carriers benefit from this oversight -- especially if they auto-renew the policy into new guarantee period at a rate less than new money rates. The window for executing a transfer out of auto-renewals is very small -- 30 days before or after the guarantee period -- and the penalty if you miss it is pretty steep. Carriers prefer MYGAs due to this short window and the ability to tailor their renewal rate policy to match their actuarial requirements and thus pay better initial rate. It will be very interesting to see in the post-fiduciary world whether an automatically renewed policy is viewed as a fiduciary event and with whom the liability will reside if the policyholder is not given reasonable notification and a runway to act on any recommendations vis a vis the 30 day window.
Jeff Affronti
6mo
Pre comment, when I read guaranteed living benefit rider in a fixed annuity I think, what do they mean. This is pretty bad article in knowledge of industry. Exactly Sheryl. Income rider are not needed on the MYGA. Income riders help sell FIAs. Rates sell MYGAs. Oh and I guess the annuitization values don't count any longer as guaranteed lifetime income benefit? Every MYGA has one. #4 is really dumb "When a surrender charge period ends and an annuity has MVA" "the surrender rate is higher" ------ NO NO NO SAME SAME The MVA is gone as well at that time nearly always so there is no difference.
Carson Porter
6mo
I think post surrender period rate integrity is a major cause for surrender… too many companies combat this with auto renewing contracts instead of just offering the rate and trusting that folks don’t need a fresh surrender period if you treat them right But then again… without the surrender period indemnity, they can’t leverage that annuity on the balance sheet as effectively 🤔
Gary Mettler
6mo
Part 2/2: In any case, the "industry" argues that lapse isn't their problem, there is nothing they can do about it and the problem entirely falls on the consumer. If lapse occurs the industry just seeks out new owners for new contracts. From the industry point of view, there is no problem and "their" life just goes on without too much of a hiccup. Owners lapse support other non-lapsing Owners via pricing. That's exactly one reason why "initially" lapse support products (annuities and also life insurance) "illustrate" so favorably. Owners don't realize, when they purchase these products the person next to them isn't going to make it and they are benefit from that reality. The problem here is; you end up being "the other person's other person". Ha. Of course, I think this is very big deal (variety of reasons) and one of the primary reasons I support non-lapsable annuity contracts. When I say some one is going to get a lifetime income contract, I'm talking decades and decades, so yah, I really mean it. Jeff Affronti Dr. Donald Moine Ted Bernstein David Macchia Brent D. Gardner, CLU, ChFC
Gary Mettler
6mo
Part 1/2: I spend a lot of time with this topic. But, I find this report or perhaps the reporting of this report odd (no slam to A. Bell). "The team excluded registered index-linked annuities, traditional variable annuities and non-variable indexed annuities from the study." - Why? The report gives the the appearance the mighty SOAs don't know what they are doing. Regardless of this report, it's pretty well accepted lapse rates spike at the conclusion of the initial surrender charge period. I know, on our (Presidential) MYGAS and "prior (2008) to the ZPIR years", at the issue date, we assumed up to a 40% lapse rate "spike" at the conclusion of the surrender period. In reality lapse rates, to some degree, occur all along the life of the book. And annuity contracts just like life insurance utilize lapse support pricing. As this report was issued during the ZPIR era when typically higher contract guaranteed interest rates better supported in-force contracts and the economy was ok, I'm somewhat surprised there was a lot of lapse. But stuff does happen regardless of economics conditions. And if in the next coupe of years, our economy falls apart, lapse rates will probably rise. Jeff Affronti .
Founder of Annuity Giants Agents Academy Retirement Wealth Analyst Former Law Enforcement Army Veteran
6moThat's interesting. The insurance companies almost HAVE to drop the rate right? If they didn't drop the rate, it would only be due to them getting a good short term rate because no insurance company is buying a 5yr 7yr or 10yr bond on a fully liquid product and risk having to call it early. So they have to turn toward short term which normally has a lot lower yield. How can we fix that?