Milliman Survey Confirms Continued Dominance of Guarantees in Variable Annuity Retirement Incom...(in committed to this feature. Average el...),Health

Date:1/28/2008

in 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 p
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