
Lapses Compared to ITM-Sensitive Lapses Expected	% of GLWB Responses
Lapses are greater than expected	0%
Lapses are lower than expected (< 10% lower)	56%
Lapses are lower than expected (> 10% but < 20% lower)	22%
Lapses are lower than expected (> 20% lower)	22%

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.)

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Study: 15% of VAs with GLWB started withdrawals in first year

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