Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
Session 84 PD, Management of Actuarial Risks for
Deferred Annuities
Moderator: Kenneth Scott Birk, FSA, CERA, MAAA
Presenters:
Timothy S. Paris, FSA, MAAA Nathan Daniel Wilbanks, FSA, MAAA
1
Management of Actuarial Risks forManagement of Actuarial Risks for Deferred Annuities
Management of Actuarial Risks for
Deferred Annuities
Nathan D. Wilbanks, FSA, MAAA
Brian Grinnell, FSA, MAAA, CQF
Session 84 - 2013 SOA Annual Meeting
October 12, 2013 2
2
on
s
What is the return on your top selling product?
l Pro
du
cts
& S
olu
tio
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
3Image courtesy of Stuart Miles / FreeDigitalPhotos.net
on
s
Distribution Matters
1.0%
μ=0
Standard Normall P
rod
uct
s &
So
luti
o
0.4%
0.6%
0.8%
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
4
0.0%
0.2%
(15.00) (10.00) (5.00) - 5.00 10.00 15.00
3
on
s
Distribution Matters
Also Normal
1.0%
μ=0
l Pro
du
cts
& S
olu
tio
0.4%
0.6%
0.8%
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
5
0.0%
0.2%
(15.00) (10.00) (5.00) - 5.00 10.00 15.00
on
s
Distribution Matters
Exponential
1.0%
μ=0
l Pro
du
cts
& S
olu
tio
0.4%
0.6%
0.8%
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
6
0.0%
0.2%
(15.00) (10.00) (5.00) - 5.00 10.00 15.00
4
on
s
Distribution Matters
Barbell
1.0%
μ=0
l Pro
du
cts
& S
olu
tio
0.4%
0.6%
0.8%
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
7
0.0%
0.2%
(15.00) (10.00) (5.00) - 5.00 10.00 15.00
on
s
Distribution Matters
Uniform
1.0%
μ=0
l Pro
du
cts
& S
olu
tio
0.4%
0.6%
0.8%
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
8
0.0%
0.2%
(15.00) (10.00) (5.00) - 5.00 10.00 15.00
5
on
s
Distribution Matters
Weibull
45.0%
50.0%
μ=0
l Pro
du
cts
& S
olu
tio
15 0%
20.0%
25.0%
30.0%
35.0%
40.0%
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
9
0.0%
5.0%
10.0%
15.0%
(15.00) (10.00) (5.00) - 5.00 10.00 15.00
on
s
Distribution Matters
Lognormal
1.0%
μ=0
l Pro
du
cts
& S
olu
tio
0.4%
0.6%
0.8%
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
10
0.0%
0.2%
(15.00) (10.00) (5.00) - 5.00 10.00 15.00
6
on
s
Distribution Matters
Lognormal
1.0%
μ=0
l Pro
du
cts
& S
olu
tio
0.4%
0.6%
0.8%
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
11
0.0%
0.2%
(15.00) (10.00) (5.00) - 5.00 10.00 15.00
on
s
Distribution Matters
Cauchy
0.35%
0.40%
μ is undefined
l Pro
du
cts
& S
olu
tio
0 10%
0.15%
0.20%
0.25%
0.30%
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
12
-0.05%
0.00%
0.05%
0.10%
(5.00) (4.00) (3.00) (2.00) (1.00) - 1.00 2.00 3.00 4.00 5.00
Fat tails (not a value judgment)
7
on
s
Distribution Matters
Normal vs. Cauchy vs. Lognormal
0 60%
0.70%
l Pro
du
cts
& S
olu
tio
0.30%
0.40%
0.50%
0.60%
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
13
0.00%
0.10%
0.20%
(5.00) (4.00) (3.00) (2.00) (1.00) - 1.00 2.00 3.00 4.00 5.00
on
s
Distribution Matters
1-year Equity Returns from Nationwide’s Economic Scenario Generator (ESG)
200%
l Pro
du
cts
& S
olu
tio
0%
50%
100%
150%
An
nu
al r
etu
rn
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
14
-100%
-50%
100% Equity
8
on
s
Distribution Matters
1-year Equity Returns from Nationwide’s ESG – Emphasis on Tails
80
100
l Pro
du
cts
& S
olu
tio
0.1% 1.0% 5.0% 25.0% 75.0% 95.0% 99.0% 99.9%
-40
-20
0
20
40
60
An
nu
al r
etu
rn (
%)
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
15
-100
-80
-60
%ile of distribution100% Equity
on
s
Engineering a Better Distribution
Equity Indexed Annuity (EIA) Returns
80
100
l Pro
du
cts
& S
olu
tio
0.1% 1.0% 5.0% 25.0% 75.0% 95.0% 99.0% 99.9%
-40
-20
0
20
40
60
An
nu
al r
etu
rn (
%)
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
16
-100
-80
-60
%ile of distribution100% Equity EIA
9
on
s
Engineering a Better Distribution
Static 60% Equity Fund
80
100
l Pro
du
cts
& S
olu
tio
0.1% 1.0% 5.0% 25.0% 75.0% 95.0% 99.0% 99.9%
-40
-20
0
20
40
60
An
nu
al r
etu
rn (
%)
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
17
-100
-80
-60
%ile of distribution100% Equity EIA Static 60% Equity
on
s
Engineering a Better Distribution
Managed Volatility Fund up to 80% Equity
80
100
l Pro
du
cts
& S
olu
tio
0.1% 1.0% 5.0% 25.0% 75.0% 95.0% 99.0% 99.9%
-40
-20
0
20
40
60
An
nu
al r
etu
rn (
%)
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
18
-100
-80
-60
%ile of distribution100% Equity EIA Static 60% Equity MVF80
10
on
s
Aka Target Vol Fund, Volatility Controlled Fund, in some cases Tactical Asset Allocation Fund
May or may not include an element of principal protection
What is a Managed Volatility Fund?
l Pro
du
cts
& S
olu
tioMay or may not include an element of principal protection
Seeks to modify equity exposure (through tactical allocations or the use of derivatives) in order to limit the volatility of the underlying
Can be used for both Variable Annuities and Fixed Indexed Annuities• Limits downside risk for Variable Annuities
Li it ti t l tilit f Fi d I d d A iti
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua• Limits option cost volatility for Fixed Indexed Annuities
19
on
s
Cellular Results: Free Withdrawals
80%
90%
FIA Withdrawal Frequency by Age & Tax Statusl P
rod
uct
s &
So
luti
o
20%
30%
40%
50%
60%
70%
80%
Frequency
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
20Source:
0%
10%
<50 50‐59 60‐64 65‐69 70‐79 80+Attained Age Group
Total Non‐Qualified Total Qualified
11
on
s
Cellular Results: Arbitrage Opportunities
l Pro
du
cts
& S
olu
tio
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
21
on
s
Cellular Results: Arbitrage Opportunities
20.0%
SPIA Returns by Age: Malesl P
rod
uct
s &
So
luti
o
-5.0%
0.0%
5.0%
10.0%
15.0%
50 55 60 65 70 75 80 85
RO
TC
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
22
-15.0%
-10.0%
Age at Income Start Date
SPIA Mortality Standard Mortality Super Preferred Mortality
12
on
s
Cellular Results: Arbitrage Opportunities
20.0%
SPIA Returns by Age: Females
l Pro
du
cts
& S
olu
tio
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
50 55 60 65 70 75 80 85RO
TC
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
23
-20.0%
-15.0%
Age at Income Start Date
SPIA Mortality Standard Mortality Super Preferred Mortality
on
s
Cellular Results: Average Size
k
l Pro
du
cts
& S
olu
tio
Ba
nd
Bre
ak
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
24
Note that almost 20% of premium is right on the cusp of the band break
~11% of Premium is less than 25K. Premium less than 10Konly consists of 3% of production.
13
on
s
Cellular Results: Average Size
l Pro
du
cts
& S
olu
tio
Ba
nd
Bre
ak
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
25
~46% of Policies are less than 25K in premium
~15% of Policies are greater than 105Kin premium
on
sDistribution Matters
How granular should results be?
What’s Next?
l Pro
du
cts
& S
olu
tioHow granular should results be?
Compare like competitor products
Arbitrage Avoidance
Management of Actuarial Risks for Deferred Annuities Session 84
Ind
ivid
ua
26
14
Management of Actuarial Risks for Deferred AnnuitiesSession 84, October 22 2013, 8:30-9:45am
Timothy Paris, FSA, MAAARuark Insurance Advisors, Inc.
28
15
16
17
Lower Surrender
Rates
Emerging GLWB Partial Withdrawals
GMIB Annuitizations
18
Policyholder Behavior Rears Its Head
SurrendersUSD 1 1bUSD 1.1b
Mortality and surrendersEUR 0.6b
SurrendersUSD 0 3b SurrendersUSD 0.3b
Surrenders and other behaviorCAD 0.3b
The Challenge
19
Guarantees Are Fragile
Active Risk Management
Interest Rates
Equity Indices
Currency Exchange Rates
Legal and Reputational Risks
Operational Risks
Policyholder Behavior Risks
20
Is Behavior Reinsurable?
Errors and Omissions
Commercial Crime
Product Liability
Directors and Officers
Fiduciary Liability
Kidnap and Ransom
ReinsurableAutomobile Terrorism
Advantages
Ceding Company
Reinsurance Company
Manage from first principles
Avoid capital markets exposure
Growth market
Improve transparency
More predictable financials
Mitigate non-core risks
Diversified portfolio
principles
Competitive edge
transparency
21
Bespoke
Hedging Attribution Report Gain/(Loss)
Hedged Market RisksDelta, Rho, Gamma, Vega, Theta
Unhedged Market RisksUnhedged Funds, Basis Risk
Program AdministrationModel Differences, Expenses
P li h ld B h iPolicyholder BehaviorMortality, Elective Behavior
Total
22
Policyholder Behavior Reinsurance
Behavioral T tTargets
Reinsurance Structure
Practical Considerations
1200
1400
GMAB
1000
600
800
0 1 2 3 4 5 6 7 8 9 10
23
Claims = Frequency X Severity
140%
160%
180%
Claims Premiums
80%
100%
120%
20%
40%
60%
Expected
24
Practical Considerations
Premium Benchmark
Sweet Spot
Volume Adjustments
Experience Refund
Claim LimitsQuota Share
25
Thank You!
Timothy Paris, FSA, MAAAy , ,
Chief Executive Officer
Ruark Insurance Advisors, Inc.
860.866.7786
linkedin.com/in/timothysparis