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Milliman Survey Confirms Continued Dominance of Guarantees in Variable Annuity Retirement Income Products
Date:1/28/2008

SEATTLE, Jan. 28 /PRNewswire/ -- Results from Milliman's third annual Guaranteed Living Benefits (GLB) survey of leading U.S. variable annuity (VA) carriers indicate that nearly 95% of variable annuities offered include some form of GLB.

Total sales of VAs that offered a GLB during calendar year 2005 averaged 87% of total VA sales, stable relative to 2004 results. This figure increased to 93% during 2006, and then up to 95% during the first half of 2007, demonstrating the continued popularity of such benefits.

The purchase of GLBs by policyholders also continued to increase from 2005 to the first half of 2007. On average, during calendar year 2005, the election rate of GLBs was 68% of total VAs that offer any GLB, up from 56% in 2004. The comparable figures for 2006 and the first half of 2007 are 73% and 74%, respectively. A small percentage of VA sales (less than 5%) offer a GLB that is automatically included in the product design. A more recent trend is that nearly 20% of VA sales involve an offer of a "hybrid" GLB. (A hybrid GLB refers to multiple GLBs packaged together, such as a GMAB/GMIB, or GMAB/GMWB.)

The VA marketplace generally offers three types of GLBs. Election rates of the Guaranteed Minimum Withdrawal Benefit and Guaranteed Lifetime Withdrawal Benefit (GMWB/GLWB) increased, on average, from 24% in 2004 to 29% in 2005, to 40% in 2006, and to 43% during the first six months of 2007, according to survey participants (relative to total sales of VAs that offered a GMWB/GLWB). Guaranteed Lifetime Withdrawal Benefits continue to be the most popular GLB in the current VA market.

GMWB/GLWBs captured some of the market share from the Guaranteed Minimum Income Benefit (GMIB) whose election rates decreased from 24% in calendar year 2005 to 23% in 2006 and then to 22% during the first six months of 2007. Although election rates for GMIBs have been falling steadily, there is still a strong core of companies and producers that remain committed to this feature. Average election rates of the Guaranteed Minimum Accumulation Benefit (GMAB) decreased from 7% in 2005 to 5% in 2006 and then to 4.2% during the first half of 2007. The portion of total VA sales in which no GLB was elected dropped from 44% during 2004 to 40% during 2005, to 33% during 2006, and to 31% during the first six months of 2007.

The universe of survey participants consisted of variable annuity carriers that issue at least one type of GLB. Nineteen carriers participated in the survey, indicating continued interest in this topic in the marketplace today. Sales reported by the 19 participants represent about 57% of the VA market. Twelve of the 19 participants were ranked in the top 20 based on new VA sales (according to Morningstar, Inc.'s The VARDS Report) with six participants ranked in the top ten.

GLBs provide guarantees on VAs that would otherwise reflect equity-like risk profiles. The typical GMIB guarantees that income from a deferred VA will be no less than an amount calculated by applying specified settlement option rates to a guaranteed benefit base. Eligibility for guaranteed income payments in most GMIB designs requires that a seven to ten year waiting period be met. GMABs typically guarantee that the account value will be no less than a specified percentage (usually 100%) of the premiums paid after a designated number of years. GMWB/GLWBs guarantee a specified amount of partial withdrawals regardless of the account value performance. GMWB designs included a guarantee equal to a certain dollar amount, typically a return of premiums paid. GLWB designs guarantee withdrawals for life, rather than a certain dollar amount.

Variable annuities are retirement products that offer investment options similar to mutual funds, as well as guaranteed lifetime income payments and death benefits. The inclusion of GLBs on VAs has resulted in the creation of an important financial instrument for helping individuals plan for their retirement.

Milliman, whose corporate offices are in Seattle, serves the full spectrum of business, financial, government, and union organizations. Founded in 1947 as Milliman & Robertson, the company has 47 offices in principal cities in the United States and worldwide. Milliman employs more than 2,000 people, including a professional staff of more than 900 qualified consultants and actuaries. The firm has consulting practices in employee benefits, healthcare, life insurance/financial services, and property and casualty insurance. For further information visit http://www.milliman.com


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