The evolution of guaranteed living benefit features in variable annuities is continuing to unfold, in terms of their impact on sales, overall purchase ("election") rates, and utilization rates.
Three GLB types are generally offered in the VA marketplace: guaranteed minimum income benefits (GMIB), guaranteed minimum accumulation benefits (GMAB), and guaranteed minimum withdrawal benefits/guaranteed lifetime withdrawal benefits (GMWB/GLWB).
The vast majority of VA sales (93%) involve products offering GLBs, according to Milliman Inc.'s third annual survey on VA GLB market dynamics. (The survey of 19 VA insurers–most of them top sellers–includes VAs offering at least one type of GLB during 2006 and the first half of 2007; their average responses appear here.)
The 93% average increased to 95% during the first half of 2007. In fact, a small percentage of VA sales (less than 0.5%) 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. (Chart 1 shows sales by GLB type.)
When VA sales involve an offer of a GLB, nearly 73% elect at least one benefit. That figure was nearly 74% for the first 6 months of 2007. (See Table 1.)
Election rates of optional GLBs vary by company, ranging from 24.7% to 93.8% during 2006 and from 25.7% to 94.4% during the first half of 2007.
Sales of VAs with the GMWB/GLWB feature continue to outpace VA sales with other GLBs. This trend is clearly being driven by the growing dominance of the GLWB. For calendar year 2006, standard GMWBs were elected on 21.8% of total VA sales, dropping to 12.1% during the first half of 2007. Conversely, GLWB election rates were 27.6% of total VA sales during 2006, increasing to 40.3% during the first half of 2007. Some of this is obviously driven by carriers that discontinued offering the standard GMWB option after the GLWB option was introduced.
