Rate Setting Program
Setting (interest) rates and option budgets for annuities can be a highly stressful and complicated task, especially for a large assortment of annuity products. Larger product assortments have become instrumental to growing and defending market share. Unlike other industries, a large assortment of annuity products is not very difficult to manufacture. On the contrary, a large assortment of annuity products projects an image of experience and financial maturity, which customers (retirees) admire.
Systematic Process
Setting interest rates is typically a systematic process at most insurers. This process involves the use of manual discretion overlaid on systematic rules to combine various inputs such as:
- Expected asset returns
- Option (Hedge) cost
- Realized policyholder returns (renewing policies)
- Competitive landscape
- Health of general account
- Surrender Charge and Term
Setting interest rates and option budgets for a large number of annuity and life insurance product lines, each having multiple new money and renewing policy cohorts can quickly grow into a tedious process, disrupting the focus of management from more value-accretive tasks.
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