Redington Prize-Winning Paper: Lapse-and-Reentry in Variable Annuities

February 20, 2018


External Forces & Industry Knowledge


Presented by

Investment Section


2:00–3:15 p.m. ET


This webcast takes place via the Internet.

Registration Fees

Registration is now closed. The SOA Customer Service Center is available to assist you Monday through Friday, 8:00 a.m. to 5:00 p.m. CDT. Please call +1-888-697-3900.

Who Should Participate

Actuaries who familiar with the Redington Prize.

Also, members of the following sections:

Investment Section

Education and Research Section

Joint Risk Management Section

Product Development Section


Section 1035 of the current U.S. tax code allows policyholders to exchange their variable annuity (VA) policy for a similar product while maintaining tax-deferred status. This "lapse-and-reentry" strategy allows policyholders to potentially increase the value of the guarantees embedded in their VA policies.

In this webcast, presenters will show that for a return-of-premium death benefit guarantee, this strategy is frequently optimal. This has severe repercussions for VA pricing since the market reentry triggers policy acquisition expenses that are borne by the insurer and only recovered from the policyholder over time. Presenters will analyze various policy features that may help mitigate the incentive to lapse and compare them regarding the insurer's average expense payments and their post-tax utility to the policyholder. They find that a ratchet-type guarantee and a state-dependent fee structure best mitigates the lapse-and-reentry problem, with both outperforming the typical surrender schedule.

Presenters will also share results from their model, indicating that when accounting for proper tax treatment, the policyholder rationally prefers a VA with any of these three policy features over a comparable stock investment.

How the live webcast works and what it includes

You do not need any special equipment. On Feb.19, 2018, before 2:00 p.m. ET you will be sent detailed webcast instructions via email including the Web address for accessing the live-streaming broadcast presentation. Any handouts that are available will also be sent.

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