Oliver Wyman Annuity Product Development Trends - 2014 SOA Annual Meeting Exhibit
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This document discusses trends in the fixed indexed annuity (FIA) market and products. It notes that FIA sales have grown at a 10% annual rate from 2007-2014. It also discusses trends toward volatility-controlled indices, liquidity features in annuity products, and enhanced lifetime income and death benefits. Hybrid or structured annuities that have features of both FIAs and variable annuities are also discussed as a growing part of the annuity market.
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Oliver Wyman Annuity Product Development Trends - 2014 SOA Annual Meeting Exhibit
- 1. © 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
- 2. © 2014 Oliver Wyman 1 Agenda I.FIA market update II.FIA product trends III.Hybrid annuities IV.Key takeaways
- 3. © 2014 Oliver Wyman 2 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) $ Billions 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
- 4. © 2014 Oliver Wyman 3 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
- 5. © 2014 Oliver Wyman 4 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 US Stock Companies Foreign Subsidiaries Mutual Companies Ownership Structure Lower Credit Rating Higher B B+ B++ A- A A++ Market share and dominant distribution channels by ownership structure and credit rating Privately 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 CNO Companies Protective Life 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
- 6. © 2014 Oliver Wyman 5 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 US Stock Companies Foreign Subsidiaries Mutual Companies Ownership Structure Lower Credit Rating Higher B B+ B++ A- A A++ Market share and dominant distribution channels by ownership structure and credit rating Privately 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 9.9 8.8 7.5 % % % % % % FIA market update
- 7. © 2014 Oliver Wyman 6 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.
- 8. 7 © 2014 Oliver Wyman 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
- 9. 8 © 2014 Oliver Wyman 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
- 10. © 2014 Oliver Wyman 9 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 Rider Composite Richness Index* Lower Credit Rating Higher B B+ B++ A- A A++ 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. Lower Higher FIA product trends
- 11. 10 © 2014 Oliver Wyman 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
- 12. 11 © 2014 Oliver Wyman Hybrid annuity crediting structures compared to FIAs and VAs Note: For illustrative purposes, assumes no fees and no dividends Hybrid annuities
- 13. © 2014 Oliver Wyman 12 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