Dear editor:
I noticed the opening sentence of “Weighing the Value of a Variable Annuity” (July 31, 2012 RIJ) mentions that Steinorth and Mitchell indicate that a VA lifetime withdrawal benefit—especially one with a ‘ratchet’—can provide upside potential and downside protection many Baby Boomers want in retirement.
Attached is a short PDF I sent to you previously, containing selected language from the 1998 GMWB & GLWB patent filing. Anticipating such a desire for a ratchet, I included it in the patent filing and even gave a numerical example of how this would work. (See page 3 of the attached PDF.)
Another reason a VA-writing life insurer might want to offer a “ratchet” GLWB is for persistency purposes. Suppose the VA account value goes up substantially after the GLWB election in a product with a standard, non-ratcheting GLWB. In the current product, a consumer’s GLWB withdrawal level is fixed at the original level. If the consumer performs an exchange to a new VA and elects a new GLWB still of the standard, non-ratcheting form, then he or she establishes a higher GLWB withdrawal level.
If the original VA-writing life insurer had offered a “ratchet” design, such loss of business on the books could have been avoided, resulting in higher assets under management and the commensurately higher M&E&A revenue.
So while a ratcheting GLWB may offer additional value (for an additional price) to the consumer, the insurer’s self-interest can also play a role in the offering of such a design.
Best wishes,
Jeffrey Dellinger
