AN OUTSIDE--IN VIEW OF THE LTCI INDUSTRY

1. AN OUTSIDE--IN VIEWOF THE LTCI INDUSTRY Session 5: February 27, 2006 Session Producer: Ty Wooldridge, Chief Actuary Genworth Financial

2. PANEL Eric Berg Lehman Brothers Neal Freedman Standard & Poor’s Jeremy Pincus The Forbes Consulting Group, Inc.

3. Eric Berg Life Insurance Analyst Lehman Brothers

4. Neal Freedman Associate DirectorStandard & Poor's

5. LTC Insurance Industry Overview: Opportunities for Profitable Growth Jeremy Pincus, Ph.D. Principal Forbes Consulting Group

6. Industry Overview • You’ve heard the bad news • I bring you good news and a message of hope • There are three steps that can unlock enormous opportunity: 1. Get to know a profitable consumer market niche and align your product and brand with it 2. Align with proven distribution to that niche 3. Use your success to invite more competition

7. I. Focus On A Profitable Market Niche

8. One Size Does Not Fit All Pick a customer segment and own it… …avoid the folly of trying to be all things to all people Align distribution, marketing, style, tone, branding, and product with needs and preferences of your target segment.

9. Four Segments That Think About LTC In Completely Different Ways Planners Non-Planners Family- oriented Motivated to protect family from burden of LTC Seek to preserve assets “Family should take care of their own” “I’d rather die than live in a nursing home” Price sensitive Self- oriented Comfort Independence/Control Unconcerned w/ burdening family or personal well-being Denial/Cannot accept aging

10. 4 Types x 3 Age Groups = 12 Segments Each type “ripens” at a different age… Orientation 40-49 50-59 60-74 Family Confident Couples Comfortable Realists Family-Centric Planners Self Diligent Preservers Independence Driven Self-Directed Singles Family Passive Burdened Fear for Family Head in the Sand Non-Planners Self Live for Now Fading Denial Value-Seeking …and develops new ways of thinking about LTC as they age

11. Control over Quality of Care Immediate Risk (Accident, MS) Avoid Nursing Home Protect Family & Inheritance Compound Inflation Shared Family Benefits Informal Care Unlimited Coverage Who Is Your Target Customer And What Do They Care Deeply About? • What are you really selling? • What are your customers really buying?

12. II. You Will Benefit From Increased Distribution

13. Distribution Needs To Expand Due to the complexity of the product and sale, LTC specialists have been needed 178,000 161,000 13,000 8,000 2,000 Market growth is hampered by the limited number of true LTC specialists, estimated at approximately 8,000, compounded by a shrinking agent pool.

14. Why Current Distribution Is Inadequate • The ~8,000 specialists can only reach a small fraction of the potential market for LTC insurance (82 million) • Each LTCi specialist would need to meet with 10,250 prospects • If each of the 8,000 LTCi specialists sold one policy every work day, only 2% of the available market would be penetrated each year

15. It’s Getting Harder To Sell • Higher priced new policies largely account for the decline in sales • A 20-25% increase in premiums is associated with a 30% decline in sales, due to price elasticity of demand that exceeds 1.0 at target ages (40-59) Pricing of New Policies Avg. Premium per Insured (2005) = $2,100 Avg. Premium per Insured (2004) = $1,900 LTC Market Growth Dynamics Avg. Premium per Insured (2000) = $1,677 Demand (% finding price acceptable) Source: LIMRA, HIAA

16. Distribution Is Shifting From One-to-One To One-to-Many • Employer sponsored LTC sales growth (35% per year) is outpacing individual LTC sales growth (13% per year) [Milliman] • Multi-life worksite sales are increasingly driving the individual market, particularly limited-pay executive carve-out plans • The top independent LTC brokerages are targeting this form of sale to older Baby Boomers. • Expanded or National Partnership • Evidence by some carriers reveals that the sales of Partnership policies already have outpaced non-partnership policies [NAHU] • 12% of all policies in-force in NY are Partnership 36% of all MetLife individual policies are Partnership Employer-Sponsored Group 20%+ Individual & Association 80% Multi-Life 10%+ Expanding distribution will require product simplification, standardization, and affordability. Partnership expansion can be a catalyst for all three.

17. III. You Will Benefit From More Competition

18. LTC Insurance Sales Are Overly Concentrated 4-Firm Concentration Ratios Market Share of Top 4 Firms Who’s concerned? • Lawmakers who see private LTCi as potential solution • Wall Street and Rating Agencies are worried about risk and returns • Carrier executives are worried about “going it alone” • Producers are worried about carrier commitment

19. …And Market ConcentrationIs Increasing 4-Firm Concentration Ratios 69% 66% 57% 54% 53% Individual LTC Insurance Market Share of New Sales (Premium)

20. Benefits of Increased Competition • The LTC Industry is too concentrated to generate sufficient “share of voice” • The largest insurance companies/largest insurance advertisers do not currently sell LTC insurance at all: • AIG (#1) • ING (#2) • AXA (#3) • Zurich • Liberty Mutual • The Hartford • Sun Life LTC Market Growth Dynamics Share of Voice for LTC is limited to press releases and small-scale print advertising run by a handful of companies. Large scale awareness campaigns are left to government programs (Medicare’s Own Your Future).

21. The Little CMO Who Could