The adoption of guaranteed living benefits fell in the first quarter of 2011 to their lowest rate since the third quarter of 2008—and improved confidence in the stock market may be the reason.
Guaranteed living benefits were adopted, when they were offered with variable annuities, 86% in the first quarter, according to LIMRA. That was down from a peak of 90% in the first quarter of 2009, notes Dan Beatrice senior analyst, retirement research with LIMRA.
The 2009 peak came at “a time when confidence was tremendously shaken,” explains Beatrice. As the equities market has rebounded, election rates have “moderated,” he says.
The rate of election in the first quarter was down one percentage point from the rate in the fourth quarter of 2010, according to LIMRA.
Still, the rate of 86% is high by a historical standard. Election rates were in the 75% range in 2006, and increased throughout 2007, surpassing the 80% mark in early 2008, says Beatrice.
“So the guarantees remain popular after witnessing two dramatic downturns in one decade,” says Beatrice, “but the popularity has slipped from the mid-crisis peak.”
The development is no reason for the industry to scramble, he adds. “I don’t believe the industry needs to pursue a goal of having nine out of every 10 dollars in new VA sales be in contracts with a GLB,” he says.
Companies that offer variable annuities with guaranteed living benefit riders have been making adjustments to remain competitive since the first adjusting to their competitive market since the first guaranteed-minimum-income rider was introduced in 1996, he adds.
The report also shows that the election rate for guaranteed lifetime withdrawal benefits—one of five types of guaranteed living benefits taken into consideration--dropped two percentage points, to 63%, when any guaranteed living benefit was available for purchase.
Meanwhile, the election rate for guaranteed minimum income benefits increased one percentage point from the fourth quarter of 2010 to the first quarter of 2011. Those those for guaranteed minimum accumulation benefits, guaranteed minimum withdrawal benefits and hybrid GLB election remained unchanged.
Variable annuity assets with guaranteed living benefits increased 7%, from $521 billion at the end of 2010, to $558 billion at end of the first quarter of 2011. LIMRA’s survey tracks the election rate of guaranteed living benefits based on new sales premium of variable annuity products in which at least one guaranteed living benefit is offered.