Indexed Annuities - Market Update Michael Sparrow, FSA, MAAA, CERA - - PDF document
Equity-Based Insurance Guarantees Conference Nov. 11-12, 2019 Chicago, IL Indexed Annuities - Market Update Michael Sparrow, FSA, MAAA, CERA SOA Antitrust Compliance Guidelines SOA Presentation Disclaimer Sponsored by Indexed Annuities
Chicago, IL
SOA Antitrust Compliance Guidelines SOA Presentation Disclaimer
Sponsored by
MICHAEL SPARROW, FSA, MAAA, CERA
VP – Hedging & Risk Management, Nationwide Insurance
2019 EBIG Conference (Chicago) Session 1B: 10:45am-12:15pm November 11, 2019
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Overview of today’s session and spe peakers Trends in the Indexed Annuity Market
Impact of interest rates, today and tomorrow
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FI FIA sales continue to br break records each year…
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2008 2018 2018*
… at the expense of variable annuity sales which ended a long contraction
by RILA inclusion
FIA VA
$27 $152 $80 $145 $70 $90
2013
$39 $100
2018* represents sales with RILA counted as FIA instead of VA
Source: LIMRA
INDEXED ANNUITIES
CDs, savings
w/solid performance
demographics
acceptance
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$0 $50 $100 $150 2013 2014 2015 2016 2017 2018
VARIABLE ANNUITIES
limits
reductions
valuations
tolerance
Source: LIMRA
*Most FIA products do not have a declared fee, except when benefit riders are present
insurers still nascent
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81% 19% 54% 46%
2013 Now
subdued +7% yearly rate
FI/IBD Agents Agents FI/IBD Source: LIMRA
40% 60% 78% 22% 37% 63%
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FIA (2018) VA (2018) VA Recent Past*
Source: LIMRA GLB election survey. 2018 results as a % of total sales. Recent past is 2015 VA sales as a % of sales where GLWB was offered.
Cha hanges in n yields in the pa past two years are reshaping the indexed annuity market
9 Dec-2015 FED makes first tightening move
Financial Crisis & Recovery 20017-2015
Dec-2016 FED makes next move 2017 FED makes three +0.25% moves to normalize rates 2018 FED makes four more +0.25% tightening move s July-2019 FED eases despite economic growth Sep-2019 FED eases further, economy slowing Oct-2019 FED eases 3rd time, signals done for now
0.00 1.00 2.00 3.00 4.00 5.00 1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y 2008-10-29 2016-12-15 2017-12-14 2018-12-19 0.00 1.00 2.00 3.00 4.00 5.00 1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y 2018-12-19 2019-07-31 2019-10-30
2008-2018 YE2018-present
Sources: (1) www.thebalance.com , (2) www.treasury.gov
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Gross Investment Yield Defaults & Inv Expense Insurer Spread Margin Hedge Bud udget +
3.50% 0.25% 1.00% 2.25%
FIA Pricing*
* Pricing shown is illustrative only
Annualized Option Term Option Budget 1Y 0.25% 0.3% 0.50% 0.7% 0.75% 1.1% 1.00% 1.5% 1.25% 2.0% 1.50% 2.4% 1.75% 2.9% 2.00% 3.3% 2.25% 3.8% 2.50% 4.3% 2.75% 4.8% 3.00% 5.3% 3.25% 5.8% 3.50% 6.4% 3.75% 7.0% 4.00% 7.5%
XYZ Insurance Co Indexed Annuity
YOUR RATE: S&P 500 Return up to
3.80%
per year
Call Sp Spread Costs
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Improved Cus ustomer Value
Mgmt Actions Invest Strategy Product Design Product Design Index choice Increase term length Reduce index floor (RILA/ ILVA) Investment Strategy Credit risk or Alternative assets Optionality (structure) Duration Floating rate instruments Management Actions Lower operating expenses Reduce commissions Portfolio view of rates Accept lower IRR
significantly by choosing a longer index term
achieved from choice of…
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0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Cap Option Budget
1Y 2 3
proposition absent further product innovation
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