Session 5.2 – Life Insurance Product Update Brave New World

1. Session 5.2 – Life Insurance Product UpdateBrave New World LOMA/LIMRA/SOA Life Insurance Conference Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC April 17, 2013

2. Brave New World Indexed Universal Life Market Profile • Sales in 2012 reached at least $1.3 billion • Continuation of ten-year trend of average premium growth of about 30% (34% in 2012) • Strong growth by National Western, Allianz Life, American General • New entrants poised to enter • Top four carriers nearly half the market • Some insurers likely never to offer Index UL • Product is now mainstream, well suited for low interest rate environment

3. % of US Equity Managers Underperforming the Index (December 31, 2012) Source: Standard & Poors, December 2012 SPIVA Scorecard

4. Product Trends Emerging on Indexed Universal Life Strengthened death benefit guarantees, but not competitive for single and limited pay New index crediting approaches, but S&P variations and rainbows dominate Addition of LTC and chronic illness features Treasury-Indexed UL Death benefit paid as a stream Policy loan designs which control divergence between AV and Loan Balance Focus on 25-year look back bogey for index selection vis-à-vis illustrations

5. Indexed Universal Life – What Are the Major Issues? Sales Illustrations Nearly Lapse Supported New Directions Lack of Uniformity Front-ended COIs, Expense Loads Simplified Issue ACLI Task Force-25yr LB Not as viable in rising interest rate environment Survivorship Loan Performance Pressure to Provide Strong DB Guarantees New Indices Inforce Illustration Capabilities Life expectancy adequate? Shadow Accounts?

6. Variable Universal Life Continues to Suffer from Weak Sales, but Some Renewed Product Development 2012 Variable Life Sales: Premium = 0% growth Count = (10)% growth COLI and Private Placement Sales very Influential in these Numbers Source: LIMRA Analysis of ability to add competitive death benefit features VUL not subject to AG38, but VUL has its own reserve rules Only one carrier has really shaken market with competitive DBG on VUL

7. Variable Universal Life has Witnessed Some Renewed Design Activity Recrafted products from existing players, not new players Reaction to lowered valuation interest rates Insertion of Indexed Accounts into VUL, a la VAs Meaningful chatter about guaranteed income/withdrawal features Inclusion of LTC and Chronic Illness Components

8. Current Assumption UL Trying to Find a Popular Niche in this Tough Environment Low interest rates challenge the competitive illustration story Some carriers have migrated away from SGUL to a non-guaranteed, but competitive, premium-to-carry structure Modest period of true no-lapse guarantee death benefits Limited pay scenarios can be priced more attractively due to lack of guarantee

9. Guaranteed Death Benefit UL has Adapted Under the Impact of Actuarial Guideline 38 and Low Interest Rates Rates increased as of January 1, 2013 if not sooner Shift to Single Tier Shadow Accounts Limitations of Premium Payments impact Single Pays Older ages seeing the biggest price bumps Another round of pricing changes in early Q3 Trimming of commissions

10. Thank You! Timothy C. Pfeifer, FSA, MAAA E-mail: tpfeifer@pfeiferadvisory.com www.pfeiferadvisory.com