Oliver Wyman Annuity Product Development Trends - 2014 SOA Annual Meeting Exhibit
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Transcript of Oliver Wyman Annuity Product Development Trends - 2014 SOA Annual Meeting Exhibit
© 2014 Oliver Wyman
Guillaume Briere-Giroux, FSA, MAAA, CFA
Annuity Product Development Trends Market and Product Development Trends for Fixed Indexed Annuities
2014 SOA Annual Meeting & Exhibit
Orlando – October 27, 2014
© 2014 Oliver Wyman 1 1 © 2014 Oliver Wyman
Agenda
I. FIA market update
II. FIA product trends
III. Hybrid annuities
IV. Key takeaways
© 2014 Oliver Wyman 2 2 © 2014 Oliver Wyman
Indexed annuity sales trends (2001-2014) FIA sales are on pace to achieve a 10% cumulative annual growth rate (CAGR) between 2007 and 2014
Source: Wink’s Sales & Market Report (2006 and prior) and LIMRA (2007 and later)
$ B
illi
on
s
6.8
11.8
14.4
23.1
27.2 25.3 25.0
26.7
29.9
32.1 32.2 33.9
39.3
50.0
0
10
20
30
40
50
60
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
10.4% CAGR
Industry forecast
FIA market update
© 2014 Oliver Wyman 3 3 © 2014 Oliver Wyman
Top FIA writers in 2014 (1-10)
High
Low
Rank
(2014
Q2 YTD)
Company 2014 Q2
YTD Sales
($ Billions)
2013 Q2
YTD Sales
($ Billions)
YoY Change
(%)
% Indexed
(2013)
% Variable
(2013)
% Fixed
(2013)
1 Allianz Life 6.61 2.40 175%
2 Security Benefit 2.35 2.08 13%
3 American Equity 1.91 1.97 -3%
4 Great American 1.56 1.09 43%
5 Athene1 1.19 1.34 -12%
6 Midland National .90 .81 11%
7 Voya .85 .52 65%
8 EquiTrust .82 1.00 -18%
9 Symetra .74 .44 68%
10 Fidelity & Guaranty Life .70 .49 41%
Composition of sales
1 2013 sales figure combines Aviva and Athene
Source: Wink’s Sales & Market Report and LIMRA
FIA market update
4 4 © 2014 Oliver Wyman
Lincoln
Symetra
Competitive landscape (2013) Today’s FIA market has a broad range of players with increasing representation outside of the independent channel
Source: Wink’s Sales & Market Report and Oliver Wyman Research
Phoenix
Banks and broker dealers
Independent and banks
Independent organizations
Recent
Acquirers
U
S S
tock
Com
panie
s
Fo
reig
n
Subsid
iarie
s
Mutu
al
Com
panie
s
Ow
ners
hip
Str
uctu
re
Lower Higher Credit Rating
A++ A A- B++ B+ B
Market share and dominant distribution channels by ownership structure and credit rating
Private
ly
Held
Career
Size of bubbles represents 2013
market share
Primary distribution channels
A+
Allianz Life
Sagicor Life
Jackson National
Security Benefit
American Equity
Great
American
EquiTrust
Athene Fidelity &
Guaranty Life
North
American Midland
National
Lincoln Benefit Life
VOYA
Genworth
AIG
National Western
Protective Life CNO Companies
Pacific Life Nationwide
OneAmerica
Western &
Southern
All other
companies
Forethought
National Life Group
15.5
10.4
11.7
7.1
7.9
%
%
%
%
%
FIA market update
5 5 © 2014 Oliver Wyman
AmerUS
(Aviva USA / Athene Block)
ING
(Now VOYA)
Competitive landscape (2005) The FIA market was previously heavily concentrated in “niche players” focusing on the independent channel
Source: Advantage Compendium and Oliver Wyman Research
Banks and broker dealers
Independent and banks
Independent organizations
Recent
Acquirers
U
S S
tock
Com
panie
s
Fo
reig
n
Subsid
iarie
s
Mutu
al
Com
panie
s
Ow
ners
hip
Str
uctu
re
Lower Higher Credit Rating
A++ A A- B++ B+ B
Market share and dominant distribution channels by ownership structure and credit rating
Private
ly
Held
Career
Size of bubbles represents 2005
market share
Primary distribution channels
A+
Allianz Life
Jackson
National
American Equity EquiTrust
Midland
National
Jefferson Pilot
(Now Lincoln)
Sun Life
(Now Delaware
Life)
All other
companies
%
%
Old Mutual
(Now Fidelity &
Guaranty Life)
15.2
8.7 32.3
8.89.9
7.5% %
%
%
% %
FIA market update
© 2014 Oliver Wyman 6 6 © 2014 Oliver Wyman
Economic conditions The yield environment favors longer duration fixed annuities
Source: Federal Reserve of St Louis, Treasury data and BofA Merrill Lynch US Corporate Option-Adjusted Spreads
Select Bond Yields Credit and Maturity Spreads
FIA market update
Credit spreads returned to pre-crisis levels, but the yield curve is steeper. This environment
favors longer duration products such as FIA with GLWBs.
7 © 2014 Oliver Wyman 7
Base product design trends
FIA product trends
1 Volatility control
indices
• Lower hedge cost allows uncapped upside
• Sellers include Security Benefit, Symetra, Allianz Life, Fidelity and Guaranty Life
2 Liquidity features
• Features that are not new but popular include
• Return of premium
• Bailout provisions
• Nursing home waivers
• Shorter surrender charge designs gained popularity
3 Other
accumulation
features
• “Buy up” the cap
• Rolling forward index credits
• Credits linked to change in interest rates
• Guaranteed minimum values
Average commissions have been declining but the trend has stabilized in recent quarters
8 © 2014 Oliver Wyman 8
Benefit rider trends
1 Indexed-linked
income growth
• “Stacked” rollups (e.g. 4% + account value performance)
• “Turbocharged” account value driving income
• Income increases after income start
2 Other variations in
lifetime income
structures
• Rollups are compound / simple / or absent (e.g., vary income rates by age / duration)
• Limiting rollups / limiting younger issue ages common (AG 33)
• Less breakpoints in income bands
• More income options (flat, guaranteed increase or index-linked increases)
3 Nursing home
income riders
• Offered for free or additional charge (e.g. 10 bps)
• Typically doubles the income for up to 5 years if cannot perform 2 of 6 ADLs
• Becoming increasingly common
• Complex to price
4 Enhanced death
benefits
• Offered with or without GLWB (sometimes for an additional charge)
• Wait periods
• Maximum payout
• Payout periods / reduced lump sum
Benefit riders are the most important driver of sales for many carriers, but less so for carriers
focusing on distribution through banks. The next slide shows the relationship with between
rider richness and market share for top FIA carriers offering benefit riders.
FIA product trends
© 2014 Oliver Wyman 9 9 © 2014 Oliver Wyman
Rider competiveness The richness of GLWB riders and “extras” such as nursing home “doublers” and GMDBs correlates fairly well with market share changes
Decreasing market share
Increasing market share
Stable market share
Rid
er
Co
mp
osit
e R
ich
ness In
dex*
Lower Higher Credit Rating
A++ A A- B++ B+ B
Market share and market share changes by credit rating and rider richness
Size of bubbles represents 2013
market share
Market share changes
A+
Company E
Company G
Company D
Company B
Company A
Company C
Company F
Source: Sales from Wink’s Sales & Market Report
Rating / rider richness
“equivalent” line
*Rider composite richness index
includes allowance for GLWB
payouts, rider charges, presence
of nursing home benefits and
GMDBs.
This analysis does not factor
commissions, distribution
allowances or base credited
rates.
Lo
wer
Hig
he
r
FIA product trends
10 © 2014 Oliver Wyman 10
Hybrid annuities “Hybrid” or “structured” annuities fill the spectrum between FIAs and variable annuities and had sales of more of $4 billion since their introduction in 2010
Hybrid annuities
11 © 2014 Oliver Wyman 11
Hybrid annuity crediting structures compared to FIAs and VAs
Note: For illustrative purposes, assumes no fees and no dividends
Hybrid annuities
© 2014 Oliver Wyman 12 12 © 2014 Oliver Wyman
Key takeaways
1 FIA market continues to expand quickly
2 Target volatility indices continue to gain traction
3 Increased differentiation of benefit riders
Key takeaways