We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (21,155)
  • Industry Conferences (2)
  • Industry Job Openings (35)
  • Moore on the Market (414)
  • Negative Media (144)
  • Positive Media (73)
  • Sheryl's Articles (800)
  • Wink's Articles (353)
  • Wink's Inside Story (274)
  • Wink's Press Releases (123)
  • Blog Archives

  • March 2024
  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • September 2008
  • May 2008
  • February 2008
  • August 2006
  • 11 Ways To Spruce Up FA Rates

    May 19, 2010 by Timothy Pfeifer

    Published 4/29/2010 

    The motto for the real estate world might be “location, location, location,” but for fixed annuities, it’s “rate, rate, rate.”

    Sales compensation, liquidity, and features can be important, but the fixed annuity focus usually comes down to rate. So, what is a company to do when it can only earn gross returns of 3.75% to 4.5% on its own A-rated securities and 4.25% to 5% on its BBB-rated bonds?

    This is the dilemma that declared rate fixed annuity insurers are facing. The above gross yields must be further reduced by investment expense, default risk charges, and required product spreads in order to arrive at the policyholder’s yield.

    In today’s environment, fixed annuity carriers have begun to search for rate “nuggets” in their product design and pricing, like the 49’ers of the 1800’s. These chunks of rate boosters may be small on their own, but together, they can turn a disappointing fixed annuity return into one with marketplace appeal. Here are 11 rate boosters to consider:

    1. Effective yields. First, although obvious to most, make sure the investment professionals in the company are passing along annual effective yields, and not nominal yields, to the credited rate setters. It is amazing how often these few basis points of rate have been left on the table.

    2. Minimum size. Increase it if the policy does not vary credited rate by premium band. A $25,000 minimum (and even $50,000) can help credited rates by a tick.

    3. Surrender charges. Most distributors believe that the length of the surrender charge is more important than its level. A one percentage point change in one year for a surrender charge will change the required interest spreads (and credited rates) by one basis point, according to an approximate rule of thumb. So changing a 5-year surrender charge schedule from 6, 5, 4, 3, and 2 points to 6, 6, 6, 6, and 6 points, respectively, frees up 10 basis points of rate under that rule of thumb.

    4. Add a market value adjustment. Depending on the type of MVA and its protective value, rates can be increased by 10 to 25 basis points. Make sure the MVA behaves consistently with real changes in asset value, however.

    5. Drop the principal guarantee. It rarely comes into play, but everyone pays for it, to the tune of 6 to 10 basis points. Adding a bailout instead in this environment can be more capital efficient. 

    6. Adopt the Change-in-Fund Method of reserving. This statutory reserve approach can help when future interest rates are expected to increase. Even if rates stay level, this approach can generate some rate pickup.

    7. Eliminate the free partial withdrawal in the first year or lower it in all years. Initial surplus strain strongly impacts profits and rate setting. Do policyholders really need this liquidity, especially in the first year?  It serves to boost reserves, and drags down returns.

    8. Levelized sales compensation. Even just “more levelized,” rather than strictly level, compensation can substantially alleviate surplus strain, adding to rates/profitability.

    9. Reflect covariance in risk-based capital. This means that insurers active in a variety of product lines with offsetting risks can reduce the amount of capital they carry, boosting rates.  Many companies do not currently reflect covariance in pricing.

    10. Add measured amounts of BBB and higher grade BB investments. Although required capital will increase, extra returns may more than offset, so it is important to look for value.

    11. Reduce the guaranteed minimum credited rate. This change gives an indirect benefit to current credited rates for carriers that price using a range of interest scenarios.

    Some of the above nuggets are more technical in nature, and others are more customer-facing. In either case, applying these and other adjustments may help re-energize a tired credited rate. Other possibilities, such as including a surrender charge at death, may help the credited rate, but be too harsh from a policyholder and regulator perspective to be acceptable.

    One other way to potentially boost credited rates is by managing all of a company’s new and in-force fixed annuity business as a consolidated whole. This usually leads to a “robbing of Peter” (the older business) “to pay Paul” (the new business), a distasteful situation. However, if the management of older assets and liabilities can be combined with newer assets and liabilities in such a way to avoid policyholder equity issues, this can represent a meaningful way to support credited rates.

    The environment is challenging. Product designs that de-emphasize today’s interest rate–such as Treasury-linked or CD-linked annuities–ultimately may be the answer. In the meantime, however, it may be necessary for many insurers to take out the gold pans and start the prospecting.

    Timothy Pfeifer, FSA, MAAA, is president of Pfeiffer Advisory, LLC, Libertyville, Ill. His email address is tpfeifer@pfeiferadvisory.com.

    Originally Posted at National Underwriter on April 29, 2010 by Timothy Pfeifer.

    Categories: Industry Articles
    currency