How Likely Is That Annuity to Stick?

Will your client’s new annuity stay in force for decades, or only until the surrender-charge period ends?

Or, will it suddenly just go poof?

Members of the Society of Actuaries Research Institute’s Individual Annuity Experience Committee studied that topic together with LIMRA.

The team compiled information about individual fixed-rate deferred annuity contracts that 23 U.S. issuers gathered from 2015 through 2022.

The data file included a 13.4 million contract count, $1 trillion in contract value and about 900,000 surrenders. The issuers that sent in data accounted for a 45% share of the fixed-rate deferred annuity market during the period studied.

The team excluded registered index-linked annuities, traditional variable annuities and non-variable indexed annuities from the study.

In spite of the publicity that annuities with guaranteed living benefit riders receive, fewer than 1% of the contracts in the data submitted came with such a rider.

Why it matters: Many analysts who compare the possible performance of annuities to alternatives assume that an annuity will stay in place from the time a retirement saver buys it until the day the retirement saver passes into an entirely different market segment.

But clients, of course, drop annuities all the time. The lifespan distribution of annuities and the odds that any given client will replace an annuity, or simply take cash out and blow the money on fishing tackle, is critical to know whether the client’s retirement planning strategy will work.

Financial professionals may have gut feelings about which clients will surrender their annuities and, possibly, client tracking spreadsheets that show which annuities have actually been surrendered, but the SOA-LIMRA team had access to huge amounts of data and sophisticated statistics specialists on hand to do, and check, the math.

SOA-LIMRA study access: The Society of Actuaries is a group for professionals who have taken difficult tests to prove that they know the math needed to understand annuities.

LIMRA is a research and consulting organization that is part of LL Global, an entity owned by life insurers and other financial services companies.

SOA and LIMRA once published their reports for all to see. They started charging for their full research reports last year because they were having a tough time funding the projects by lining up sponsors. The cost of access to the full annuity surrender report for purchasers who did not supply data is $40,000.

The project team has put some of their findings in a public report.