1 / 19

Session 12: Panel on Life Annuities

Session 12: Panel on Life Annuities. Jeffery Yong IAIS Secretariat Regional Training Seminar IAIS-ASSAL San Salvador, 25 November 2010. Agenda. Overview – pension gap Recent product developments Variable annuities Risks Longevity risk Low interest rate environment

akenneth
Download Presentation

Session 12: Panel on Life Annuities

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Session 12: Panel on Life Annuities Jeffery Yong IAIS Secretariat Regional Training Seminar IAIS-ASSAL San Salvador, 25 November 2010

  2. Agenda • Overview – pension gap • Recent product developments • Variable annuities • Risks • Longevity risk • Low interest rate environment • Recent risk mitigation instruments • Regulatory developments Session 12: Panel on Life Annuities

  3. Mind the pension gap Source: OECD Pension at a glance 2009 Session 12: Panel on Life Annuities

  4. Agenda • Overview – pension gap • Recent product developments • Variable annuities • Risks • Longevity risk • Low interest rate environment • Recent risk mitigation instruments • Regulatory developments Session 12: Panel on Life Annuities

  5. Variable annuities - structure • Unit-linked products offering access to investment funds Guaranteed Minimum DeathBenefit • Guaranteed value on death • Examples: • return of premium • premium rolled-up at pre-set interest rate • highest point the fund ever reached • average fund value over the last few policy years Guaranteed Minimum Accumulation Benefit • Guarantee on fund value Guaranteed Minimum Income Benefit • Guarantee income levels on minimum conversion rates when moving from accumulation to income phase. • Guarantee regular income from the fund during defined period. • E.g. 7% for first 15 years; 5% for life upon reaching age 65 Guaranteed Minimum Withdrawal Benefit Session 12: Panel on Life Annuities

  6. An example of the guarantees Source: AXA Session 12: Panel on Life Annuities

  7. Growing interest in variable annuities - Japan Gross sales of variable annuities in the US Fund under management for variable annuities in Japan (in JPY) Source: Watson Wyatt Session 12: Panel on Life Annuities

  8. Why are variable annuities popular? • Replace other savings-type of life products e.g. with-profits policies – opaqueness, discretion • Offer attractive returns with guarantees • BUT there is no free lunch! • Surrender charges • Insurance charges • Policy charges • Fund management charges • Guarantees charges Session 12: Panel on Life Annuities

  9. Risks associated with variable annuities Session 12: Panel on Life Annuities

  10. Agenda • Overview – pension gap • Recent product developments • Variable annuities • Risks • Longevity risk • Low interest rate environment • Recent risk mitigation instruments • Regulatory developments Session 12: Panel on Life Annuities

  11. Ageing population – a global phenomenon Percentage of people aged 65 and over Source: Swiss Re, OECD Session 12: Panel on Life Annuities

  12. Time in retirement will be longer despite higher retirement ages due to increasing longevity Pension Ages in the OECD 1960-2050 Expected time in retirement 1960-2050 Source: OECD Session 12: Panel on Life Annuities

  13. Longevity improvements are not uniform Heat map of estimated annual rates of mortality improvements for England and Wales (LHS: Male; RHS: Female) Source: Institute of Actuaries Session 12: Panel on Life Annuities

  14. Falling interest rate putting pressure on guarantees Source: Sun Life Session 12: Panel on Life Annuities

  15. Annuity rates are falling with interest rates Annuity rates and 10 year gilt yields Note: Annuity rate is for a 65 year old male purchasing a single-life annuity non-guaranteed annuity for GBP10,000 Source: ABI Session 12: Panel on Life Annuities

  16. Longevity bonds and swaps Insurer Counterparty Longevity Swap Unknown future annuity payouts • Variable • payments matching • longevity index • - actual experience exchanged Longevity Bond Issue price Insurer Counterparty Mortality dependent cash flow Session 12: Panel on Life Annuities

  17. Agenda • Overview – pension gap • Recent product developments • Variable annuities • Risks • Longevity risk • Low interest rate environment • Recent risk mitigation instruments • Regulatory developments Session 12: Panel on Life Annuities

  18. Regulatory developments in response to variable annuities EU US Canada • Draft report on VA just issued for consultation • Technical/actuarial issues – hedging, technical provisions, capital adequacy • Governance issues • Group/colleges issues • Systemic/ macroprudential issues • New principles-based reserving requirements • Enhancements to annuity disclosure to identify potential risk (e.g. interest rates movements) • Enhancements to internal model calibration for segregated funds Session 12: Panel on Life Annuities

  19. Thank you for your attention. Any questions/ comments? jeffery.yong@bis.org www.iaisweb.org Session 12: Panel on Life Annuities

More Related