Comments (0) Ruark Consulting has released our major benchmark Variable Annuity Benefit Utilization Study. Please view the press release below for additional information.
Variable Annuity Benefit Utilization Study (Press Release)
The media has shown interest in the Variable Annuity Benefit Utilization Study. Noteworthy articles include:
Rich Tucker was quoted in a Bloomberg News article, dated January 8, 2010, that discussed the emergence of Athene Life Re as a reinsurer focused exclusively on fixed annuities. A link to this article in Business Week follows.
Black’s Apollo Targets Fixed Annuities With Bermuda Reinsurer
The high capital requirements of traditional fixed and fixed indexed annuities must be managed carefully. Reinsurance is a major management tool. Inforce blocks of business can be reinsured to manage current capital levels. Apply reinsurance to new business to manage to your desired capital levels on an ongoing basis. Instead of restraining sales to manage capital levels, reinsurance allows you to continue to support your distribution channels by allowing them to sell the volume of new business desired and providing them with the variety of products needed. The insurance company can diversify their accumulation business among traditional fixed, indexed, and variable annuities.
Methodology
For the Variable Annuity Benefit Utilization Study that we released in December 2009, RCL used the classical Limited Fluctuation (LF) credibility method. We believe that this method is reasonable for this purpose, as it reflects both withdrawal frequency and severity and is computationally straightforward. In this context, severity measures the amount of a withdrawal in relation to a guaranteed Benefit Base.
Credibility theory often utilizes the following basic formula to calculate a credibility-weighted estimate:
Estimate = Z * [Mean of current observation] + (1-Z) * [Prior mean],
where 0<=Z<=1.
Z is the credibility ascribed to the mean of the current observation. The prior mean may be based on prior observed data or some type of benchmark. The question is – how do we determine Z?
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