ReCent Actuarial News
Navigating the future
January 2025
As annuity insurers prepare for Principles-Based Reserving rules in the U.S., Hannover Life Reassurance Company of America is expanding our reinsurance offerings.
Hannover Life Reassurance Company of America (“Hannover Re”) has long supported the U.S. annuity sector by reinsuring Guaranteed Lifetime Withdrawal Benefit (GLWB) riders attached to fixed annuity (FA) and fixed-indexed annuity (FIA) products, having developed our first solution nearly 20 years ago.
As more carriers began to offer such valuable riders to help policyholders address their retirement income needs, we expanded our initial offering by providing the industry’s first GLWB rider financial reinsurance solution, enabling carriers to transfer both their reserve and capital requirements and minimize balance sheet volatility, resulting in more attractive products for policyholders across the entire market. Over the years, we have analyzed and modeled hundreds of products and placed dozens of reinsurance agreements, providing valuable coverage on more than USD 100 billion of underlying account value.
With the anticipated adoption of Principles-Based Reserves (PBR) targeted for implementation as soon as 1 January 2026, we anticipate reinsurance needs will change. PBR’s statutory requirements enable a prudent best estimate approach for actuarial assumptions, evaluated across a distribution of economic and market conditions.[1] In anticipation of these changes, Hannover Re intends to leverage our reinsurance expertise and market intelligence to support the industry’s evolving needs with uniquely tailored solutions that continue to enhance our clients’ financial positions and net retained risk profiles.
Our forthcoming PBR solutions, still centered on ceding GLWB and other guarantee risk, will be structured on a tailored basis, driven by each client’s specific needs and motivations. As PBR is likely to still require significant levels of prudence and has the potential to increase reserve volatility, we will continue to offer reinsurance solutions to our clients to address these challenges. If living benefit rider sales continue to increase as expected in the years ahead,[2] our proven ability to deliver customized solutions positions us well to address market demand, regulatory shifts, and increased market competition.
A bright future awaits
Hannover Re’s reinsurance solutions have expanded to meet the increased needs of our clients as FIA with GLWB sales continue to skyrocket.[3] Policyholder interest in these products only continues to rise year over year. According to LIMRA’s U.S. Individual Annuity Sales Survey, in the first nine months of 2024, FIA sales set a new record, up 56% from the prior year’s results, and 35% year-to-date through 30 September 2024.[4]
Historically, our solutions have positioned us as the market leader in the GLWB financial solutions space, providing more coverage to more companies than any other reinsurer. We have successfully enabled our clients to free up capital, reduce new business strain, address accounting volatility, and continue to issue competitive products during a time of great demand for annuities. We adopt a collaborative approach to ensure our solutions are well understood by all stakeholders and accounted for accordingly.
Moving forward, three factors are combining to continue to strengthen sales of annuities in the coming years:
- A steep increase in the number of people aging into retirement
- Unsettling economic uncertainty and high interest rates
- Continuing declines in the reliance on traditional defined-benefit pension plans [5]
FA and FIA carriers will continue to capitalize on these trends to provide stable and secure lifetime income alternatives to policyholders and Hannover Re will continue to develop solutions to support the market.
Evolving market needs
With PBR’s expected implementation beginning as early as 2026, we expect that our clients’ reinsurance needs and motivations will change. PBR calls for calculating reserves that reflect the specific features and risks embedded in a product using prudent best estimate assumptions.[6] We believe there will be key advantages for companies to transfer the risk of the GLWB rider using reinsurance, including some reserve credit, potential capital credit, accounting volatility mitigation and risk reduction. Our solutions aim to help our clients balance persistency and longevity risk by converting indeterminate future annuity payments into more of a fixed cash flow stream, either during the policy’s accumulation phase or in its payout phase. Leveraging our strong balance sheet and extensive experience in the GLWB space, we are prepared to offer PBR-friendly GLWB solutions that will allow our clients to continue offering competitive and diverse products to prospective annuity holders.
It remains likely that PBR will continue to require significant levels of prudence in actuarial best estimate assumptions. As a result, we expect the demand for capital and reserve management solutions to persist. Hannover Re will continue to meet the needs of our clients by providing financial reinsurance solutions under a PBR framework. This has been the case for life insurance products when PBR became effective in 2017.
Future ready
With a nod toward our deep history in tailored solutions, our strategy is to continue partnering with clients in crafting bespoke solutions under a PBR framework, based on desired risk appetites and motivations. Together, we will create reinsurance solutions that are mutually beneficial for both parties – exemplifying Hannover Re’s purpose statement “Beyond risk sharing, we team up to create opportunities.”
Author
Tiffany Norman Executive Vice President & Head of Annuity Solutions
+1 407-649-2208 tiffany.norman@hlramerica.com
Hannover Life Reassurance Company of America
Tiffany Norman is the Executive Vice President and Head of Annuity Solutions at Hannover Re U.S. She has been with the company for 18 years and has formally established the Annuity Solutions team. She is responsible for the overall financial results of the annuity reinsurance business unit for the U.S. retirement market and provides leadership in her capacity as Operational Council Member for Hannover Life Reassurance Company of America. Tiffany is an experienced leader who utilizes her technical actuarial background and collaborative approach to drive results.
References
- Potential Impact of Non-Variable Annuity PBR on Fixed Indexed Annuity Pricing. Society of Actuaries. Available at: https://www.soa.org/sections/product-dev/product-dev-newsletter/2021/february/pm-2021-02-motiwalla/. Accessed on 20 Dec 2024.
- Variable Annuity Market Update Q2 2024, page 1, Milliman. Available at: https://www.milliman.com/-/media/milliman/pdfs/2024-articles/10-9-24_q22024_milliman_va_market_update.ashx. Accessed on 20 Dec 2024.
- Annuity Payments Hit Record $104 Billion With Retirement Surge. Bloomberg Law, Nov. 20, 2024. Available at: https://news.bloomberglaw.com/daily-labor-report/annuity-payments-hit-record-104-billion-with-retirement-surge. Accessed on 20 Dec 2024.
- LIMRA. Fixed Indexed and Registered Index-Lined Annuities Post Record Sales in Third Quarter 2024. Available at: https://www.limra.com/en/newsroom/news-releases/2024/limra-fixed-indexed-and-registered-index-linked-annuities-post-record-sales-in-third-quarter-2024. Accessed on 20 Dec 2024.
- Third Quarter 2024 Marks 16 Consecutive Quarterly Increases in U.S. Annuity Sales. LIMRA. Available at: https://www.limra.com/en/newsroom/news-releases/2024/limra-third-quarter-2024-marks-16-consecutive-quarterly-increases-in-u.s.-annuity-sales--last-10-in-double-digits/ . Accessed on 20 Dec 2024.
- Potential Impact of Non-Variable Annuity PBR on Fixed Indexed Annuity Pricing. Society of Actuaries. Available at: https://www.soa.org/sections/product-dev/product-dev-newsletter/2021/february/pm-2021-02-motiwalla/. Accessed on 20 Dec 2024.
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