Milliman Unveils Insights into Annuity Surrender Rates
Milliman, Inc., a standout global consulting and actuarial firm, has shared compelling findings from its 2024 Fixed Indexed Annuity Industry Experience Studies. These comprehensive studies delve deep into policyholder behavior, shedding light on critical elements such as the age of the contract holder, the contract's duration, and its distribution methods. The research serves to illuminate both surrender behavior and partial withdrawals, focusing particularly on the utilization of guaranteed lifetime withdrawal benefit (GLWB) riders.
Trends in Surrender Rates
Recent data from Milliman reveals an alarming trend: average surrender rates have consistently risen since 2022, nearly doubling by the end of 2023 compared to the averages from 2019 to 2021. This upwards shift strengthens previous observations indicating that surrender rates decrease in fixed indexed annuity contracts designed for income generation.
"Our latest studies, which include data up to the first quarter of 2024, highlight the behavior of fixed indexed annuities following a positive shift in interest rates since their issuance," said Ben Johnson, an actuarial data scientist at Milliman, specializing in Life and Annuity Predictive Analytics. Contracts that saw interest rates rise tended to have higher surrender rates, particularly when the credited rates fell short of prevailing market rates.
Key Findings from the Research
The data presents several noteworthy insights:
- Contracts with credited rates that significantly lag behind market rates exhibited surrender rates exceeding three times those with rates closely aligned to the market.
- The analysis indicates an increase in surrender rates for contracts still under surrender charge periods, especially those securing a living benefit. Research shows that contracts without living benefits exhibit surrender rates over 1.5 times higher than pre-2022 levels, while those with living benefits exceed two times higher during the same period.
- As guaranteed lifetime withdrawal benefits (GLWBs) gain value, average surrender rates tend to diminish, especially towards the end of surrender charge periods. Contracts deep in-the-money averaged surrender rates around 11%, while those out-of-the-money hovered closer to 22%.
- Following the initiation of GLWB income, surrender rate patterns become significantly less pronounced, with averages below 5% across all durations.
Advanced Behavioral Modeling
Milliman's Fixed Indexed Annuity Experience Studies introduce a groundbreaking behavioral model as part of Milliman's Recon platform. Boasting an impressive 99.8% accuracy ratio, this model empowers annuity issuers to conduct comprehensive experience studies, explore relevant industry data, and create customized valuation models tailored to their needs.
About Milliman
Founded in 1947, Milliman is an independent consulting firm renowned for its deep expertise and actuarial precision. The company partners with both public and private sector clients to effectively navigate pressing challenges, ranging from extreme environmental events and market fluctuations to financial insecurities and escalating healthcare costs. Milliman's suite of solutions encompasses a wide range of sectors, including insurance, financial services, healthcare, life sciences, and employee benefits. With a global presence in major cities, Milliman continues to support organizations in achieving their business and societal objectives.
Frequently Asked Questions
What was the focus of Milliman's 2024 studies?
Milliman's 2024 studies focused on analyzing policyholder behavior, particularly regarding surrender rates and partial withdrawals in fixed indexed annuities.
How have surrender rates changed since 2022?
Surrender rates have shown a significant increase, nearly doubling by the end of 2023 compared to averages prior to 2022.
What factors influence surrender rates in annuities?
Factors such as credited rates, presence of living benefits, and the current interest rate environment influence surrender rates in annuity contracts.
What is the significance of GLWBs for surrender rates?
GLWBs, particularly when in-the-money, can reduce surrender rates, especially towards the conclusion of the surrender charge period.
What is the role of Milliman's Recon platform?
Milliman's Recon platform incorporates advanced behavioral modeling to facilitate accurate experience studies and help annuity writers tailor their models based on specific industry data.
