Deferred Income Annuity (DIA)

Transcription

1 Deferred Income Annuity (DIA) Actuaries Club of Hartford/Springfield Hartford, Connecticut May 21, 2014 Presented by: Jennifer Healy CRN

2 Agenda Defining DIA The Product The Fit Why Now? The Market The Pricing & Risk Recap 2

3 Most Enlightening Point You ll Ever Hear Deferred Income Annuity 3

4 The Product 2 Distinct Phases You Are Here You Want Income Here Choose Payout Option & Start Date Deferral Deferral Period. Typically 1-40 years Typically pays ROP death benefit Can change start date Payout Payout Period Options Life Only Life w/guarantees (# yrs, refund, etc) Joint Life (with or without reduction) Joint Life w/guarantees Period Certain Only (in some cases) Collapse payments 4

5 Product Positioning Usage Scenarios Retirement Income Scenario: Client is aged 50, plans to retire at 65. Wants to secure income now to cover fixed expenses in retirement, wants it to pay for his life with 10 years guaranteed Today: Age 50 Income Start: Age 65 Life w/10 Payout Longevity Insurance Scenario: Client is aged 50, plans to retire at 65, feels confident in his nest egg but is worried about outliving it. Wants income to start at age 85 and go for life Deferral Today: Age 50 Deferral $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $... Retire: Age 65 $ $ $ $.. Income start at 85 Social Security Bridge Scenario: Client is aged 50, plans to retire at 62, wants to defer Social Security until age 70 to maximize the SS income. Wants to purchase period certain DIA to provide income coverage during the gap Deferral $ $ $ $ $ $ $ $ Pmts End Today: Age 50 Retire: Age 62 Social Security starts at 70 5

6 Why is the Product Gaining Traction Now? 6

7 Income Products Have Room to Grow Total Annuity Sales 2012 vs $175.0 in $billions $150.0 $125.0 $147.4 $145.3 $100.0 $75.0 $50.0 $63.6 $63.3 $73.9 $74.3 $25.0 $0.0 $8.7 $10.5 Full Year 2012: $219.4 bil. Full Year 2013: $230.1 bil. Variable Fixed Income Source: LIMRA SRI, U.S. Individual Annuities survey, Q Fixed Annuity excludes Income While still a small part of the overall annuity industry, Income sales increased 20% from 2012 to

8 DIA Sales Up % Year over Year Income Annuity Sales Immediate Income Deferred Income $0.71 Dollars in Billions $0.10 $2.2 $0.27 $0.39 $0.10 $0.21 $0.16 $1.9 $1.8 $1.9 $2.0 $2.0 $0.40 $1.7 $0.54 $1.9 $0.56 $2.1 $2.6 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Number of Companies selling DIAs Source: LIMRA SRI, U.S. Individual Annuities survey, Q4, In two years, the number of carriers more than tripled

9 Over three quarters of DIA sales are IRAs and two-thirds come from Career Agents By Source of Money in 2013 By Distribution Channel in 2013 IRA 77% Non qualified 23% Full Service National B/D 29% Bank 3% Indep. Agent 1% Indep. B/D 1% Career Agents 66% Source: LIMRA SRI, U.S. Individual Annuities survey, Q

10 DIA - The Most Efficient Way to Generate Income DIA vs. Hypothetical GLWB Assume: $100K premium for Male age 60; Life with Cash Refund payout option DIA: Income starts as noted in chart GLWB: 5% simple interest deferral bonus; 5% Annual Withdrawal Rate. Step-ups possible Issue Age DIA Income Start Age Annual DIA Income $6, $8, $12,000 G teed Annual Withdrawal Base at Income Start GLWB Guaranteed Annual Withdrawal $115,000 $5,750 $130,000 $6,500 $150,000 $7,500 For the 10 year deferral, the GLWB would have to average over 9% returns per year in order to generate the same income level as DIA. DIA income amounts are based on Mass Mutual rates in effect 12/1/2013. Income amounts are rounded for illustrative purposes 10

11 Pricing and Risk Considerations Happy 110 th Birthday! Wow. He lived a lot longer than we thought based on the mortality tables we had when he bought the contract at 55 Longevity Risk Long duration product with no chance to reprice How confident are you in your mortality and improvement assumptions? Reinvestment Risk Long duration product, locking in price today- have to reinvest as assets mature How confident are you in your reinvestment assumption? 11

12 Recap What does DIA stand for? Why is DIA gaining traction? What events led to this? Name two main product risks Have DIA sales increased at all in the last year? Bonus Question by how much (roughly)? 12

13 Annuity products are issued by Massachusetts Mutual Life Insurance Company (MassMutual) and C.M. Life Insurance Company. C.M. Life Insurance Company, Enfield, CT 06082, is non-admitted in New York and is a subsidiary of Massachusetts Mutual Life Insurance Company, Springfield, MA Variable annuities offered through registered representatives of MML Investors Services, LLC, Springfield, MA or a broker-dealer that has a selling agreement with MML Strategic Distributors, LLC, Springfield, MA MML Strategic Distributors, LLC is a subsidiary of MassMutual 2014 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.