The Fixed Annuity Marketplace BRAMCO Annuity Bootcamp Timothy C. Pfeifer, FSA Pfeifer Advisory LLC February 3, 2009.

Slides:



Advertisements
Similar presentations
MODULE - IV: Security pricing: Factors influencing valuation, Constant growth modal, Equity valuation, Dividend capitalization, Earnings capitalization,
Advertisements

State of the U.S. Life Insurance Industry
Financial and Solvency Projection in Life Insurance Company
FIBI FIRST INTERNATIONAL BANK OF ISRAEL O verview
FIBI FIRST INTERNATIONAL BANK OF ISRAEL O verview
FIBI FIRST INTERNATIONAL BANK OF ISRAEL O verview
Intensive Actuarial Training for Bulgaria January, 2007 Lecture 2 – Life Annuity By Michael Sze, PhD, FSA, CFA.
Chapter 4 Return and Risk. Copyright ©2014 Pearson Education, Inc. All rights reserved.4-2 The Concept of Return Return –The level of profit from an investment,
Chapter 4 Return and Risks.
Overview of Life Insurance Crediting Rates Name Title December, 2013.
Firm Valuation: A Summary
Insurance and Pension Fund Operations
May 4, 2006 Iowa Actuaries Club “ What Every Actuary Should Know About Investing” Scott Christensen, FSA, CFA, MAAA Principal Financial Group Investment.
What’s Next for Fixed Indexed Annuities and their Income Riders? Presented by Noel Abkemeier Iowa Actuaries Club March 12, 2013 Page based on Title Slide.
C O N N I N G A S S E T M A N A G E M E N T Analyzing Reinsurance with DFA Practical Examples Daniel Isaac Washington, D.C. July 28-30, 2003.
Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC October 15, 2012.
Intensive Actuarial Training for Bulgaria January 2007 Lecture 4 – Life Insurance Reserve & Minimum Capital By Michael Sze, PhD, FSA, CFA.
Asset Liability Management: Identifying and Managing Risk Chad Myers Vice President Asset Liability Management.
08 Dec Accountant Perspective On Appraisal Value Derivation Conference: Dynamic Solvency Testing & Appraisal Value Thursday, 8 December 2005 Ballroom.
by by Financial Markets The place where entities with surplus funds and those requiring funds transact business. The financial market comprises: Money.
Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC May 21, 2012.
Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC June 7, 2011.
Katie Lenzini February 9, /9/ On the Horizon.
The Real Deal on Captives Superintendent Joe Torti, III (RI)
Asset/liability Management for Universal Life Grant Paulsen Rimcon Inc. November 15, 2001.
30/06/2012 Overview. 2 Net Operating Earnings and ROE NIS Millions 281 NIS Millions 285 NIS Millions.
MVA and EVA ► Market Value Added (MVA) = Market value of common equity – book value of common equity  2006 Best Buy MVA = $21.34 billion  2006 Circuit.
1 For agent use only. Not for dissemination to the public. Annuities 101 For Agent Use Only — Not for Dissemination to the Public.
Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC April 8, Life Insurance Conference.
Evaluating a Firm’s Financial Performance , Prentice Hall, Inc.
Jov Leon Frazer Preferred Equity Fund. 2 JOV LEON FRAZER PREFERRED EQUITY FUND: KEY FEATURES Attractive investment opportunities through investment in.
Portfolio Management Unit – II Session No. 16 Topic: Managing Portfolios by Insurance Industry Unit – II Session No. 16 Topic: Managing Portfolios by Insurance.
1 Practical ERM Midwestern Actuarial Forum Fall 2005 Meeting Chris Suchar, FCAS.
Copyright T. Rowe Price. All Rights Reserved. T. Rowe Price Retirement Funds Date Copyright T. Rowe Price. All Rights Reserved.
Chapter McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Cost of Capital 11.
Copyright © 2004 by Thomson Southwestern All rights reserved Insurance Company Financial Management Issues Chapter 16.
Evaluating a Firm’s Financial Performance Evaluating a Firm’s Financial Performance , Prentice Hall, Inc.
Prudential Balanced Fund (PRUBF1) November 2011 Fixed information Licensed Date: 5 October 2006 Listing date: 4 December 2006 Base Currency: VND Tenure:
Chapter 2 Financial Securities. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Classes of Financial Assets Financial assets.
Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC Naples, Florida February
1 Economic Benefits of Integrated Risk Products Lawrence A. Berger Swiss Re New Markets CAS Financial Risk Management Seminar Denver, CO, April 12, 1999.
Analyst & Investor Meeting Wholesale Clients SBU Wilco Jiskoot - Member of the Managing Board (Chairman of WCS) 11 December, 2003.
Risk-Based Capital: So Many Models CAS Annual Meeting 2007 Matthew Carrier, Principal Deloitte Consulting LLP November 12, 2007.
Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC April 13, 2010.
Copyright © 2011 Thomson South-Western, a part of the Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.
Smith Barney Citigroup Small & Mid-Cap Conference May 6, 2004 Allmerica Financial Corporation Ed Parry Executive Vice President Chief Financial Officer.
Economic Capital at Manulife
Tienie Hamman 17/19 November 2009 Overview of the Experience of Long-term Insurers in SA for 2008.
1 RISK AND RETURN: ACTUARIAL CONSIDERATIONS (FIN - 10) FINANCIAL MODELS and RATE OF RETURN PERSPECTIVES Russ Bingham Vice President and Director of Corporate.
Chapter 2 Analysis of Financial Statements. Financial Ratio Analysis Are our decisions maximizing shareholder wealth?
Welcome to MnR Capital MANAGEMENT Family. Wealth Management Equity Derivatives Debentures Currencies Bonds Commodities Mutual Funds Insurance Fixed Deposits.
1 SUITE 200  2100 RIVEREDGE PARKWAY  ATLANTA, GA   FAX A MEMBER OF THE M FINANCIAL GROUP SECURITIES OFFERED THROUGH.
De-risk the Defined Benefit Pensions – Collaboration of all stakeholders.
Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC October 23, Annual Conference.
McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19 Financial Statement Analysis.
CS-12 IAA Progress on RBC Life Case Study Les Rehbeli July 29, 2003.
CIA Annual Meeting LOOKING BACK…focused on the future.
Enterprise Risk Management An Introduction Frank Reynolds, Reynolds, Thorvardson, Ltd.
Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC November 13, 2014.
Aggregate margins in the context of level premium term life insurance Results of a study sponsored by the Kansas Insurance Department Slides prepared by.
Insurance Companies. Chapter Outline Two Categories of Insurance Companies: Chapter Overview Life Insurance Companies Property-Casualty Insurance Companies.
Bluewater Insurance ASA - a substantial and competent provider of risk protection 3 rd quarter of 2005.
McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Financial Statement Analysis CHAPTER 13.
Chapter 3 - Evaluating a Firm’s Financial Performance
2009 NAVA Marketing Conference
Chapter 11 Risk-Adjusted Expected Rates of Return and the
2014 Society of Actuaries Annual Meeting & Exhibit
Current Allocations**
Introduction & Terminology
Financial Service Solutions
Presentation transcript:

The Fixed Annuity Marketplace BRAMCO Annuity Bootcamp Timothy C. Pfeifer, FSA Pfeifer Advisory LLC February 3, 2009

2 Areas of Focus Today Recent fixed annuity sales and broad trends Industry product and financial responses Product pricing discussion Role of capital in product pricing and management Investment portfolios The Future

3 Recent Fixed Annuity Sales YTD 3Q Sales Est. = $70.6 Billion, up 50% over 2007 Source: Beacon Research, Inc.

4 Recent Fixed Annuity Sales by Product Type Indexed 28% Immediate 8% Book Value 47% MVA 17% Significant growth in Book Value/MVA, modest growth in indexed Source: Beacon Research, Inc.

5 Recent Fixed Annuity Sales by Channel Distribution Channel2008 Market Share (%)2007 Market Share (%) Captive Agents Independent Producers Wirehouses Large/regional B/D’s Independent B/D’s Banks and S&L’s Other

6 Important Drivers in 2008 Fixed Annuity Sales Trends Economic downturn of unprecedented proportions Equity markets slide Steepening yield curve generally Corporate spreads over Treasuries Rule 151A spectre looming AIG difficulties/1035 activity Income focus building

7 Industry Product Responses (Current) MYGA MVA’s Principal Guarantees Flexible SPIAs Indexed Product Stability LTC Combos

8 Industry Product Responses (Future) Lifetime Withdrawal Benefits Focus on Retention Bailout Provisions Interest- Indexed Products

9 Financial Responses to Current Environment A significant amount of attention to capital consumption. Some carriers are considering exiting or scaling back the fixed annuity business due to capital limitations. For some companies, concerns about liquidity are driving rate crediting decisions. Management of the existing inforce has become a much bigger part of the picture.

10 Product Pricing Discussion (#1) Spread business (superior asset returns drive) Retain assets (surrender charges, renewal credited rates) Control expenses and capital outlays ALM and Hedging have become key

11 Product Pricing Discussion (#2) Statutory, GAAP, IFRS After-tax After-required capital Main measures are –Statutory Internal Rate of Return (8-10%) –Statutory Return on Assets ( bps) –GAAP ROE (10-13%) Deterministic or Stochastic? Based upon model cells Pricing Measures

12 Product Pricing Discussion (#3) Net Investment Earned Rate (net of expenses/defaults) Commissions and other sales expenses Lapse rates and mortality (now morbidity) Capital assumptions (NAIC RBC, internal capital, other) Overhead and maintenance expenses Premium flow Pricing horizon (10-20 years) Key Pricing Assumptions

13 Product Pricing Discussion (#4) 1)Profit hurdle (today, liquidity is issue) 2)Capital assumptions (5% to 10% of reserves) 3)Net investment earnings rate 4)Lapse assumptions (spike year, specifically) 5)Commissions/sales expenses 6)Pricing horizon What differentiates carriers’ pricing?

14 Role of Capital in Product Pricing and Management Commissions and other upfront expenses Reserves (conservative) Risk-based (target) capital % of company Action Level in pricing Higher capital required to maintain ratings (300+%) Canadian companies have different regime to follow Sales of annuities generally result in statutory surplus strain Level of RBC assumed in pricing is significant, but often below company management level Why?

15 Role of Capital in Product Pricing and Management Different ratings objectives/levels of conservatism Different asset portfolio envisioned Different commission structure Different basis for risk-based capital Lower commissions Lower reserves (e.g., Change in Fund Method, MVA) Design elements (shorter interest rate guarantees; no RPG) Reinsurance What accounts for differences in capital impacts in pricing? What can be done to mitigate capital strain?

16 Fixed Annuity Investment Portfolios Traditionally,… % Corporate Bonds 5-7% of Bonds Below IG 20-25% of Bonds Private Issue Well-matched to within 0.5 – 1 yr 15-20% Mortgage Related Virtually no common stocks 5-10% in Misc. Yield Enhancers

17 Fixed Annuity Investment Portfolios But lately,….. Need for liquidity Large credit spreads available Write-downs on Mortgage-backed? Re-examinations of derivative exposure Greater opportunities with Private Issues More fallen angels creating capital issues Tight ALM harder to maintain

18 The Fixed Annuity Future Significant amount of 1035 activity Two to three-year strong run of fixed annuities Difficult investment climate starts to turn in 4 th Qtr ‘09 New fixed annuity market entrants Lifetime Income Features Indexed Products In Limbo Design and financial solutions for capital strain