Session 106 PD, Annuity Hot Topics
Moderator:
Dean Andrew Kerr, FSA, ACIA, MAAA
Presenters:
Meghan Belinski, FSA
Dean Andrew Kerr, FSA, ACIA, MAAA
Timothy C. Pfeifer, FSA, MAAA
© Oliver Wyman
CONSULTING ACTUARIES
106PD - 2014 SOA ANNUAL MEETING & EXHIBIT
October 28, 2014
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Session overview
•
Dean Kerr
– Introductions
– Overview of current hot topics and trends in the annuity space
– Hybrid (aka structured) annuities – industry view
•
Meghan Belinski
– Hybrid annuities – company view
•
Tim Pfeifer
– Variable annuities
– Fixed indexed annuities
– Contingent deferred annuities
– Deferred income annuities
2 2 © Oliver Wyman
Annuity sales: 2004 - 2013
88 80 78 73 109 111 82 80 72 85 133 137 160 184 156 128 140 158 147 145 0 50 100 150 200 250 300 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fixed Variable D o lla r b illio n s YearSource: LIMRA Secure Retirement Institute, U.S. Individual Annuity Sales Survey
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Annuity trends
Year-to-date sales ($ billions)
YTD 2014
YTD 2013
% change
Variable
Separate account
55.3
58.4
-5%
General account
15.1
14.9
1%
Total variable
70.4
73.3
-4%
Fixed
Fixed deferred
40.1
28.3
42%
Indexed 24.3 17.2 41% Fixed-rate deferred 15.8 11.1 42% Book value 11.2 8.2 37%Market value adjusted 4.6 2.9 59%
Fixed immediate
5.1
3.6
42%
Structured settlements
2.6
2.5
4%
Deferred income
1.3
0.9
43%
Total fixed
49.1
35.3
39%
Total
119.5
108.6
10%
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Hybrid annuities
Consumer appeal
• Fills risk spectrum between FIAs and accumulation VAs invested in an index fund
• Higher index cap than traditional FIA
• Buffer design
–
No losses if index drop remains within buffer
– Uncapped losses after buffer breached
• Floor design
– Immediate losses with index drops
–
Losses are limited to floor
Hybrid annuities provide consumers with higher index-linked upside potential
relative to traditional FIAs in exchange for sharing some downside return risk
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Indexed-linked account value growth profile (before fees)
FIA with annual cap
Hybrid annuity – floor design
Hybrid annuity – buffer design
Variable annuity
AV growth
Index return
AV growth
AV growth
AV growth
Index return
Index return
Index return
1Assumes no dividends.7
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Hybrid annuities
Comparison of annuity design elements
Fixed indexed annuity
Variable annuity
Hybrid annuity
No downside risk
1Unlimited downside risk
Downside risk with some protection
via buffer or floor
Participate indirectly in the
performance of the underlying
index
Invest directly in separate
accounts/funds
Participate indirectly in the
performance of the underlying
index
Choice of index, crediting method
and term
Choice of investment options
Choice of index, crediting method,
term and protection level
Guaranteed minimum crediting rate
No guaranteed minimum crediting
rate outside of the fixed account
No guaranteed minimum crediting
rate
Fixed account is available
Fixed account is often, but not
always, available
Fixed account is not usually
available (only one carrier offers a
fixed account in the investment
options)
Guaranteed living benefits are
usually available
Guaranteed living benefits are
usually available
Lack guaranteed living benefits
8 8 © Oliver Wyman
M&E fee
• None
M&E fee
• Present
Investment allocation
• Policyholders can allocate to one or more
segments/accounts
Investment allocation
• Policyholders can allocate between variable
options and structured investment/index
options
Crediting mechanism
• Each segment/account credits a return based
on the underlying index, term, buffer or floor
Crediting mechanism
• Variable options behave like a traditional VA,
and an investment expense applies
• Structured investment/index options behave
similarly to "FIA like" products
Design considerations
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Hybrid annuities
Product development and pricing considerations
Complexity
Policyholder
behavior
Regulatory
Impact of
hedging
Reserving
• Lack of
guaranteed
living
benefits
simplifies
pricing
• Leverage
synergies with
FIA and VA
designs
•
Interest-sensitive
and
index-sensitive
dynamic
lapses
• Administration
• Management of
non-guaranteed items
• No
well-established
US Statutory
or US GAAP
frameworks
• Modeling and
implementation
of frameworks
complex
• Model
regulations
and laws
• Reduce costs
• Increase
competitiveness
• Filing and
regulatory
concerns
• General risk
management
• Modeling
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The future outlook for hybrid annuities is bright
• Consumer appeal
• Access to new distribution
• Balancing product profile
• Offsetting VA guarantee risks
• Sustainable design in a low rate environment
©UFS
Meghan Belinski, FSA
AVP & Actuary, MetLife Retail Retirement Products
October 28, 2014
•
Registered Single Premium Deferred Annuity sold by
prospectus
•
No M&E or annual contract fee
•
Six year surrender charge period
•
Optional Return of Premium death benefit
2
Product Overview
3
Shield 10
Shield 15
Shield 25
Shield 100*
1-Year
Term
• S&P 500® Index
• S&P 500® Index Step Rate • Russell 2000® Index • NASDAQ-100 Index® • MSCI-EAFE Index • Bloomberg Commodity IndexSM N/A N/A • S&P 500® Index • S&P 500® Index Step
Rate
3-Year
Term
• S&P 500® Index
• S&P 500® Index Step Rate • Russell 2000® Index • NASDAQ-100 Index® • MSCI-EAFE Index • Bloomberg Commodity IndexSM • S&P 500® Index • Russell 2000® Index • MSCI-EAFE Index N/A N/A
6-Year
Term
• S&P 500® Index • Russell 2000® Index • MSCI-EAFE Index • S&P 500® Index • Russell 2000® Index • MSCI-EAFE Index • S&P 500® Index • Russell 2000® Index • MSCI-EAFE Index N/A*Shield 100 is not available in all states.
For Financial Professional Use Only. Not for Use with the General Public.
•
Policyholder elects a 3 year, Shield 10 with 20% Cap Rate
4 Cap of 20% Shield 10For Financial Professional Use Only. Not for Use with the General Public.
Account value will be reduced by any negative index performance beyond the elected level of protection. If the Shield 100 or the Fixed Account is not chosen, there is a risk of substantial loss if the index declines more than the level of protection.
-8% -12% 15% 26% 0% -2% 15% 20% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
Down Market (1) Down Market (2) Up Market (1) Up Market (2) Index Performance Policyholder Performance
Customer Value Proposition
•
Protect
your retirement assets
•
Participate
in growth opportunities
•
Personalize
your strategy
5
For Financial Professional Use Only. Not for Use with the General Public.
All contract guarantees, including the optional death benefit and annuity payout rates, are subject to the claims-paying ability and financial strength of the issuing insurance company.
6
Fixed Income
•
Diversifies variable annuity block
•
Product payoff can be easily replicated
•
Periodic rate-setting
Policyholder invests $100 in Shield 10, 1 year term, with a cap of 5.0%
For Financial Professional Use Only. Not for Use with the General Public.
Product Challenges
•
Regulatory considerations
•
Firm approvals
•
Distribution acceptance
•
Increasing competition
7•
Sales
*
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Total
$14.3
$65.4
$81.2
$73.5
$75.7
$310.2
Clients have the flexibility to allocate your purchase payment among the indices that are available with a chosen
Shield Option, or the Fixed Account. These indices are diversified among large and small cap stocks, international
stocks and commodities. Please note not all indices are available with all Shield Options.
• The S&P 500®IndexAincludes 500 large cap stocks from leading companies in leading industries of the U.S. economy, capturing
approximately 80% coverage of U.S. equities.
• The Russell 2000®IndexBincludes approximately 2000 small cap companies and provides a comprehensive and unbiased
small-cap barometer of US equities.
• The NASDAQ-100 Index®Cincludes 100 of the largest domestic and international nonfinancial securities listed on The Nasdaq
Stock Market based on market capitalization.
• The MSCI EAFE IndexDincludes over 1000 international stocks intended to measure major developed international equity
markets in Europe, Australasia and Far East (EAFE).
• The Bloomberg Commodity IndexSMEis designed to provide a broadly diversified representation of commodity markets and is
comprised of ETF's on physical commodities.
AThe S&P 500 Index is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by MetLife Insurance Company of
Connecticut. Standard & Poor’s®, S&P® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by MetLife Insurance Company of Connecticut. MetLife Insurance Company of Connecticut's Shield Level Selector SMAnnuity is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such
parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index.
BThe Russell 2000®Index is a trademark of Russell Investments and has been licensed for use by MetLife Insurance Company of Connecticut.
The Shield Level SelectorSMAnnuity is not sponsored, endorsed, sold or promoted by Russell Investments and Russell Investments makes no
representation regarding the advisability of investing in the Shield Level SelectorSMAnnuity.
CNasdaq®, OMXTM, and NASDAQ-100 Index®, are registered trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates
is referred to as the “Corporations”) and are licensed for use by MetLife Insurance Company of Connecticut. The Shield Level SelectorSMAnnuity has not been passed on by the Corporations as to its legality or suitability. The MetLife Shield LevelSelectorSM
Annuity is not issued, endorsed, sold, or promoted by the Corporations. THECORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THESHIELDLEVELSELECTORSMANNUITY.
DThe Shield Level SelectorSMAnnuity is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such
products or securities or any index on which such products or securities are based. The Shield Level SelectorSMProspectus contains a more
detailed description of the limited relationship MSCI has with MetLife Insurance Company of Connecticut and any related products.
E“Bloomberg®” and “Bloomberg Commodity IndexSM” are service marks of Bloomberg L.P. and have been licensed
for use for certain purposes by MetLife Insurance Company of Connecticut. Neither Bloomberg Finance L.P. and its affiliates (collectively, “Bloomberg”) nor UBS Securities LLC and its affiliates (collectively, “UBS”) are affiliated with MetLife Insurance Company of Connecticut, and Bloomberg and UBS do not approve, endorse, review, or recommend MetLife Shield Level SelectorSM. BLOOMBERG and Bloomberg Commodity IndexSMare trademarks or service marks of
Bloomberg Finance L.P. and have been licensed to MetLife Insurance Company of Connecticut. Neither Bloomberg nor UBS guarantees the timeliness, accurateness, or completeness of any data or information relating to Bloomberg Commodity IndexSM.