1. Variable annuity GLBs(guaranteed living benefits)
GLWBs(guaranteed lifetime withdraw benefits)
GMWBs(guaranteed minimal withdraw benefits)
GMIBs(guaranteed minimal income benefits)
GMABs(guaranteed minimal accumulation benefits)
78% of all new VA in market
GLB=579billion= 38% of VA

2. What is GLWB?
DEFINITION OF 'GUARANTEED LIFETIME WITHDRAWAL BENEFIT - GLWB'
A rider on a variable annuity that allows minimum withdrawals from the invested amount without having to annuitize the investment. The amount that can be withdrawn is based on a percentage of the total amount invested in the annuity.

3. GLWB: who buys it?

5. Why most buyers are in that age?
Most of they are baby boomers who are going to retire in near future.
Increasing life longevity, this type of insurance provides guaranteed life time cash flow.
Finance crisis in 2008 changed people’s behavior: more precautious.

6. Source of Fund
68% from qualified money
32% from non-qualified money

7. What are qualified & non- qualified
Qualified money is “before tax” money. This means you did not pay taxes on this money when you invested it. While invested, this money will grow tax-deferred. No taxes will be owed on gains within the account each year and therefore you will not get a 1099 form each year.. Eg: 401k plan?
Non Qualified money is “after tax” money, the investment earnings could be taxable each year.. For example, if you place your Non Qualified investment dollars into a CD at the bank, you will have to pay tax on the interest earnings every year. Each year, the bank will send you a 1099 tax form showing you the amount of interest earned.

8. Interpretation of the source of fund
Research shows as company attracts more rollover dollars, they will likely experience higher withdraw rate from qualified fund.
Thus, company should have a different strategy managing this money and have sufficient liquidity.
Transaction fee or( withdraw fee) also matters.

9. Risk for insurance company
Underlying investment may underperform before or during the withdraw period and the account balance might be insufficient to cover the lifetime withdraw guarantee.
Longevity risk: recall what we learned in math 471 & 472. The longer the policy holder lives, the more the present value of future payment.
Interest risk: different interest rate leads to different discount factor.
But all the risks are common risks in general insurance products. They are manageable also.

10. Change in benefit bases( large volatility in market)

11. S&P 500 chart in 2011

12. Withdraw activity average=5600

13. It’s important to understand the withdraw behavior
Because insurance company can decide how much cash needed and maximize its profit.
Source of fund and age of owners are the two major influences on withdraw activity
Customers who withdraw for two consecutive years are likely to make ongoing withdraws.

14. By source of fund and age

15. Other factors impact withdraws
Size of contracts
Deferral incentives
Duration of contract
Channel through which the contracts were sold

16. Additional premium and net flows
Many retail VAs allows owners to add premium after issue, though in practice most contracts don’t receive ongoing deposits. For most GLWBs, the calculation of the benefit base incorporates premium received within a certain period of time after contracts issue.

17. Additional premium and net flows

18. Surrender activity
Like withdraw activity, surrender activity is also very important for insurance company for the similar reasons

19. Guaranteed Minimum Withdrawal Benefit - GMWB
A type of option that annuitants can purchase for their retirement annuities. This specific option gives annuitants the ability to protect their retirement investments against downside market risk by allowing the annuitant the right to withdraw a maximum percentage of their entire investment each year until the initial investment amount has been recouped.
The best aspect of this guarantee is that it protects annuitants against any investment losses that have been incurred without losing the benefit of upside gain.

20. GMWB VS. GLWB No life time guarantee
But guarantee for a certain period
The maximal annual withdraw amount is generally higher than that of GLWB.

21. Benefit base

22. W withdraw VS. WT withdraw

23. Withdraw activity
Same reason for all Vas riders to analyze the withdraw activity

24. Withdraw activity

25. Additional premium and net flows
Many retail VAs allows owners to add premium after issue, though in practice most contracts don’t receive ongoing deposits. For some GMWBs, the calculation of the benefit base incorporates premium received within a certain period of time after contracts issue.

26. Not as many as GLWB

27. GMWB surrender rate in 2011 is 7.9%

28. GMIBs(guaranteed minimal income benefits)
A guaranteed minimum income benefit (GMIB) rider is designed to provide the investor with a base amount of lifetime income when they retire regardless of how the investments have performed. It guarantees that if the owner decides to annuitize the contract (for life, life plus a certain period, or the lives of two people), payments are based on the amount invested, credited with an interest rate-- typically 4-5%. An investor must annuitize to receive this benefit and there is typically a seven-ten year holding period (in a few instances, a seven-year holding period) before it can be exercised. Age limits may also apply.

29. GMIBs(guaranteed minimal income benefits)
Receiving a guaranteed minimum income benefit ensures that an annuitant will receive a payment regardless of market conditions. This minimum payment amount is predetermined by assessing the future value of the initial investment. This option is only beneficial to annuitants who plan to annuitize their annuity.
It’s also 2nd most popular type of GLB in VA market. Sales are up to 25 billion. 26% of VA sales.

30. Owners’ profile
Almost 2/3 of GMIB contracts were funded from qualified sources of money, part of a trend towards a greater share of annuity contracts being funded from qualified sources or rollover assets rather than nonqualified source.
Funding a qualified source of money is more common among younger buyers, especially those under 70 ( can’t believe how they define “young”)
Owners under 60 count up to 1/3 of all owners.

31. Source of fund and ownership of GMIB

32. ownership of GMIB

33. Benefit base
We use data of early out 5 were “in the money” because of the market loss in financial crisis.

34. Before financial crisis

35. So…..
The ratio of contract value to benefit base is very bad in this case, comparing to previous types of VA. Why?
Maybe more portion of the money was invested in the equity market rather than bond market.
Could we interpret this type of VA has less volatility? And thus further predict it has less surrender (withdraw) rate?

36. S&P 500 chart in 2011

37. Smaller change in percent of benefit base
Also lets compare the change in percent of benefit base. For GLWB, the change is about 9% but for GMIB which is just about 7%. Further consider the behavior of market in 2011.
Stays the same. GLWB is more vulnerable to the volatility of market.

38. Withdraw activity

39. Surrender rate

40. Surrender rate

41. Not likely
Can’t simply make conclusion by few criteria. As actuaries, we need to take thorough consideration and use scientifically and analytical methods to make judgment rather than just simply use our intuition.

42. Guaranteed Minimum Accumulation Benefits
GMAB riders in variable annuities guarantee that the contract owner will receive a minimum amount after a set period of time or waiting period – either the amount initially invested or the account value with a locked-in guaranteed rate, or market gains locked in during the waiting period. The rider guarantees protection of the investment’s value from a down market.

43. Sale of GMAB contracts Continued to decline
Down 25 percent from $3.7 billion in 2010 to $3.2 billion in 2011 to $2.4 billion in 2010.

44. Owner Profile
GMAB buyers are typically younger than any other GLB buyers. In 2012, the average age of GMAB buyers was 53.2 years. Almost a third of buyers (34 percent) in 2012 were under age 50
Percent of GMAB buyers under age 50 increased from 30 percent in 2007/2008. to 45 percent in 2009 and 2010 before falling to 31 percent in 2011
The average premium received for GMAB contracts in 2012 was $ –lower than other GLB contracts, reflecting the lower investable assets of the younger customer base

45. Ownership of Qualified and Nonqualified GMAB Annuities
For GMAB issued in 2012, 74 percent were qualified, compared with 68 percent of qualified contracts issued before 2012
This aligns with a broader industry shift that LIMRA has tracked in the total VA market, where annuities are increasingly being funded with tax-qualified money, the bulk of which likely come from rollovers by younger individuals
Three fourths of the GMAB contracts issued in 2012 were qualified, while two thirds of contracts issued before 2012 were qualified

46. Benefit Maturity
GMAB benefit utilization simply requires the owner to keep the contract in force until the day of benefit maturity
At that point, if the accumulation benefit is in-the-money, then the contract value is automatically set to the guaranteed benefit base
Most GMAB benefits mature 7 to 10 years after they are elected

47. Withdraw Activity
GMAB contracts are not designed for owners to take withdrawals, but customers may take withdrawals for emergencies, or satisfy RMDs
17% of GMAB owners took withdrawals in 2012
Around 80% of older customers took withdrawals from annuities purchased with qualified money
After age 70, the need for RMDs from qualified annuities forces owners to take withdrawals (systematic withdrawals)

48. Surrender Activity
GMAB have the highest overall surrender rates compared with other GLBs, and the highest surrender rates among VA contracts issued since 2004
9.9% in 2012
Higher GMAB surrender rates are associated with younger owners, particularly those under age 60 who took withdrawals before or in 2012
There is little difference between persistency in contracts funded by nonqualified and qualified money
There is even less difference based on gender, or the size of contracts

49. Product and Benefit Characteristics
GMABs are the least expensive GLB, especially for contracts issued before 2010
Most cost around 0.4 to 0.8 percent of contract value – either including or excluding any fixed account balance
A ten year waiting period is the most common guarantee period
Annual step-up options have become more common, and caps on benefits have become more prevalent