Annuity persistency refers to whether people hold on to their existing annuity products or exchange them--typically through a Section 1035 exchange--for new products.
Higher levels of persistency suggest that annuity owners are sticking with existing products which are likely more valuable than what would be available in the current market through an exchange.
Reuters reports that certain insurance companies are reporting higher levels of persistency. This higher persistency is particularly evident in the variable annuity market.
Higher variable annuity persistency is likely driven by the guaranteed living benefit features that accompany the vast majority of variable annuity sales. The benefits and costs associated with living benefits in the current market environment are simply unable to compete with the living benefits that were coupled with variable annuities sold several years ago.
Factors contributing to less competitive guaranteed living benefits include:
- Historically low interest rates.
- Recent capital market volatility.
- Increased hedging costs for insurance companies.
- A generally more conservative perspective among insurance companies in the wake of the financial crisis.
Source: Reuters
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