Deferred Income Annuity (DIA)
Actuaries’ Club of Hartford/Springfield
Hartford, Connecticut
May 21, 2014
Presented by: Jennifer Healy
Agenda
2
Defining DIA
The Product
The Fit
Why Now?
The Market
The Pricing & Risk
Most Enlightening Point You’ll Ever Hear
3
Deferred
Income
Annuity
The Product – 2 Distinct Phases
4
Deferral
Payout
You Are Here
You Want Income Here
Choose
Payout
Option &
Start Date
Deferral Period ….
•
Typically 1-40 years
•
Typically pays ROP death benefit
•
Can change start date
Payout Period Options…
•
Life Only
•
Life w/guarantees (# yrs, refund, etc)
•
Joint Life (with or without reduction)
•
Joint Life w/guarantees
•
Period Certain Only (in some cases)
Product Positioning – Usage Scenarios
5Today:
Age 50
Income Start:
Age 65
Life w/10 Payout
Retirement Income
Scenario: Client is aged 50, plans to retire at 65. Wants to secure income now to cover fixed expenses in
retirement, wants it to pay for his life with 10 years guaranteed
Longevity Insurance
Scenario: Client is aged 50, plans to retire at 65, feels confident in his nest egg but is worried about
outliving it. Wants income to start at age 85 and go for life
Today:
Age 50
Retire:
Age 65
Income
start at 85
Social Security Bridge
Scenario: Client is aged 50, plans to retire at 62, wants to defer Social Security until age 70 to maximize
the SS income. Wants to purchase period certain DIA to provide income coverage during the gap
Today:
Age 50
Retire:
Age 62
Social
Security
starts at 70
Deferral
Deferral
Deferral
$ $ $ $ $ $ $ $
Pmts End
$ $ $ $ ……..
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $...
6
Income Products Have Room to Grow
7
$147.4 $145.3
$63.3
$74.3
$8.7 $10.5
$0.0 $25.0 $50.0 $75.0 $100.0 $125.0 $150.0 $175.0
Full Year 2012: $219.4 bil. Full Year 2013: $230.1 bil. Variable Fixed Income
in $billions
Total Annuity Sales 2012 vs. 2013
•
While still a small part of the overall annuity industry, Income
sales increased 20% from 2012 to 2013
Source: LIMRA SRI,U.S. Individual Annuitiessurvey, Q4 2013. Fixed Annuity excludes Income
$63.6
DIA Sales Up 100
+
% Year over Year
Source: LIMRA SRI,U.S. Individual Annuitiessurvey, Q4, 2013. Number of
Companies selling DIAs
3 3 4 4 5 5 7 8 8 10
Income Annuity Sales
D o lla rs in B ill io n s $2.2
$1.9 $1.8 $1.9 $2.0 $2.0
$1.7 $1.9
$2.1
$2.6
$0.10
$0.10 $0.16 $0.21
$0.27 $0.39
$0.40
$0.54
$0.56
$0.71
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Immediate Income
Deferred Income
In two years, the number of
carriers more than tripled
Over three quarters of DIA sales are IRAs and
two-thirds come from Career Agents
Non
qualified
23%
IRA
77%
Career Agents 66% Full
Service National
B/D 29%
Bank 3%
Indep. Agent 1%
Indep. B/D 1%
Source: LIMRA SRI,U.S. Individual Annuitiessurvey, Q4 2013.
DIA - The Most Efficient Way to Generate
Income
10
DIA vs. Hypothetical GLWB
Assume: $100K premium for Male age 60; Life with Cash Refund payout option
DIA: Income starts as noted in chart
GLWB: 5% simple interest deferral bonus; 5% Annual Withdrawal Rate. Step-ups possible
DIA
Issue Age
Income
Start
Age
Annual
DIA
Income
60
63
$6,900
60
66
$8,700
60
70
$12,000
GLWB
G’teed Annual
Withdrawal Base
at Income Start
Guaranteed Annual
Withdrawal
$115,000
$5,750
$130,000
$6,500
$150,000
$7,500
For the 10 year deferral, the GLWB would have to average over 9% returns
per year in order to generate the same income level as DIA.
DIA income amounts are based on Mass Mutual rates in effect 12/1/2013 . Income amounts are rounded for illustrative purposes
Pricing and Risk Considerations
Reinvestment Risk
•
Long duration product, locking in
price today- have to reinvest as
assets mature
•
How confident are you in your
reinvestment assumption?
11
Happy 110
thBirthday!
Wow. He lived a lot longer
than we thought based on
the mortality tables we had
when he bought the
contract at 55
Longevity Risk
•
Long duration product with no
chance to “reprice”
•
How confident are you in your
mortality and improvement
assumptions?
Recap
•
What does DIA stand for?
•
Why is DIA gaining traction? What events led to this?
•
Name two main product risks
•
Have DIA sales increased at all in the last year?
•
Bonus Question – by how much (roughly)?
© 2014 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www.massmutual.com. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.
Annuity products are issued by Massachusetts Mutual Life Insurance Company (MassMutual) and C.M. Life Insurance Company. C.M. Life Insurance Company, Enfield, CT 06082, is non-admitted in New York and is a subsidiary of Massachusetts Mutual Life Insurance Company, Springfield, MA 01111.
Variable annuities offered through registered representatives of MML Investors Services, LLC, Springfield, MA 01111-0001 or a broker-dealer that has a selling agreement with MML Strategic Distributors, LLC, Springfield, MA 01111-0001. MML Strategic Distributors, LLC is a subsidiary of MassMutual