An annual study from Milliman of guaranteed living benefits on variable annuity policies shows that withdrawal utilization on guaranteed lifetime withdrawal benefits (GLWBs) is nearly 15 percent within the first 12 months of eligibility. 

The study found that about 6 percent of policies began withdrawals 13 to 36 months after eligibility, and 2 percent started withdrawals more than 36 months after becoming eligible.  

The study is still under way, so these rates will rise as more business reaches the later stages of the periods currently under study.

Withdrawal benefit exercise rates are also significantly influenced by the degree to which  withdrawal benefit base exceeds the account value (“in-the-money”).  The median exercise rate if the benefit was out-of-the-money was reported as 13.2 percent.  This rate increased to 13.9 percent when the in-the-money percent was less than 20 percent, to 25.2 percent when the ITM percent was at least 20 percent, but less than 50 percent, and to 53.9 percent when the ITM percent was at least 50 percent.  

Another factor that influences withdrawal benefit exercise rates is attained age.  Such rates increased from a median of 5.6 percent for attained ages younger than 60, to 16.7 percent for those in their 60′s, to 34 percent for those in their 70′s, and to 42.2 percent for those at least 80 years old.            

The survey indicated how lapses compare with the ITM-sensitive lapses insurers expected.  The following table shows the comparison for GLWBs, but experience is similar for other GLBs.  


Lapses Compared to ITM-Sensitive Lapses Expected

% of GLWB Responses


Lapses are greater than expected



Lapses are lower than expected (< 10% lower)



Lapses are lower than expected (> 10% but < 20% lower)



Lapses are lower than expected (> 20% lower)



Survey participants reported the percentage of variable annuity sales that were external exchanges (nonqualified 1035 exchanges, qualified rollovers, and direct transfers) over the survey period. The median of reported exchanges indicated an increase from 18.3 percent in 2009 to 23.6 percent during the first half of 2010; however, this is still significantly below the level reported for 2007 (39.7 percent).  External exchanges slowed down as GLBs on existing VAs became deeper in-the-money.

The survey reported that about 95 percent of variable annuities offered in 2009 and in the first half of 2010 included some form of GLB. The purchase of any GLB by policyholders has increased consistently, on average, from 2006 through 2009, with a slight decline during the first half of 2010.  The average election rate of any optional GLB during 2009 was 74.5 percent for 2009 and 73.8 percent for year-to-date (YTD) June 30, 2010. Other contracts contain automatic GLBs; consequently, the effective purchase rate is higher in aggregate.

The scope of the survey covered four types of GLBs that are generally offered in the VA marketplace: guaranteed minimum income benefits (GMIB), guaranteed minimum withdrawal benefits (GMWB), guaranteed lifetime withdrawal benefits (GLWB), and guaranteed minimum accumulation benefits (GMAB). Hybrid GLBs refers to multiples GLBs that are packaged together, such as a GMAB with a GLWB.        

GLWBs continue to be the most popular GLB type offered and elected. The percentage of VA sales that offered an optional GLWB has increased from a median of 75.4 percent in 2006 to 95.1 percent during the first half of 2010.  Purchase rates of GLWBs also increased over the same period from a median of 54.2 percent in 2006 to 69.2 percent in 2009 and YTD June 30, 2010.

Events of the past few years have led VA carriers to design products with more flexibility. Most current VA policies allow for the adjustment of rider costs on inforce policies. Many still allow a change to fees only upon a step-up to the benefit base, and some allow a change on a quarterly basis or on annual policy anniversaries. There has been some movement by VA carriers to allow for cost adjustments on inforce policies at any time.  

Variable annuity carriers that issue at least one type of GLB were invited to participate in the survey. There continues to be a high level of interest in this topic in the marketplace today with 18 carriers participating in the study. Eleven of the 18 participants ranked in the top 20 based on new VA sales (according to Morningstar Annuity Research Center.)