Guaranteed Living Benefits in Variable Annuity Contracts Remain Popular |
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Written by U.S. Insurance News
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Thursday, 31 January 2008 |
The results are in. Nearly 95% of the leading variable annuity carriers offered included some form of Guaranteed Living Benefit (GLB) option according to Milliman’s third annual Guaranteed Living Benefits survey.
The results are in.
Nearly 95% of the leading variable annuity carriers offered included some form of Guaranteed Living Benefit (GLB) option according to Milliman’s third annual Guaranteed Living Benefits survey.
Milliman, a Washington-based consulting firm, recently released the results of its survey of 19 variable annuity (VA) carriers. Variable annuities are insured retirement products that offer investment options similar to mutual funds, as well as guaranteed lifetime income payments and death benefits.
The VA marketplace generally offers three types of GLBs; Guaranteed Minimum Withdrawal Benefit (GMWB), Guaranteed Lifetime Withdrawal Benefit (GLWB), and Guaranteed Minimum Income Benefit (GMIB).
GLBs provide guarantees on VAs that would otherwise reflect equity-like risk profiles. The typical GMIB guarantees that income from a deferred VA will be no less than an amount calculated by applying specified settlement option rates to a guaranteed benefit base. Eligibility for guaranteed income payments in most GMIB designs requires that a seven to ten year waiting period be met. GMIBs usually guarantee that the account value will be no less than a specified percentage (usually 100%) of the premiums paid after a designated number of years. GMWB/GLWBs guarantee a specified amount of partial withdrawals regardless of the account value performance. GMWB designs include a guarantee equal to a certain dollar amount, typically a return of premiums paid. GLWB designs guarantee withdrawals for life, rather than a certain dollar amount.
First conducted in 2005, the GLB survey revealed that 87% of all variable annuities sold contained some form of GLB. This percentage increased to 93% in 2006. The 2007 results confirm that this is an ongoing trend in the industry.
The selection and purchase of the available GLBs paralleled these results. In 2005, the election rate of GLBs was 68% of total VAs that offered a GLB of any type. The corresponding figures for 2006 and the first half of 2007 were 73% and 74%, respectively. Less than 5% of VA carriers offer a GLB that is integral to the design of the product. Nearly twenty percent of VA sales include an offer of a “hybrid” GLB. (A hybrid GLB normally refers to multiple GLBs packaged together, ie. GMAB/GMIB or GMAB/GMWB)
Election rates of the GMWB/GLWB increased, on average, from 24% in 2004 to 29% in 2005, to 40% in 2006, and to 43% during the first six months of 2007, according to survey participants (relative to total sales of VAs that offered a GMWB/GLWB). Guaranteed Lifetime Withdrawal Benefits continue to be the most popular GLB in the current VA market.
GMWB/GLWBs captured some of the market share from the GMIB. GMIB election rates dropped from 24% in calendar year 2005 to 23% in 2006 and then to 22% during the first six months of 2007. Even though election rates for GMIBs have been falling steadily, there is still a strong core of companies and producers that remain committed to this feature. Average election rates of the Guaranteed Minimum Accumulation Benefit (GMAB) decreased from 7% in 2005 to 5% in 2006 and then to 4.2% during the first half of 2007. The portion of total VA sales in which no GLB was elected dropped from 44% during 2004 to 40% during 2005, to 33% during 2006, and to 31% during the first six months of 2007.
About the survey participants:
Nineteen carriers participated in the 2007 Guaranteed Living Benefit survey. Reported sales by the respondents represent 57% of the variable annuity market. Of the participants, twelve were ranked in the top twenty based on new VA sales* with six ranked in the top ten.
* Morningstar, Inc. – The VARDS Report.
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