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Life Insurance as an Alternative Asset. Traditional Asset Class Returns – (25 years 1986-2010). Life Insurance as an Alternative Asset Class. 5.0%. Treasury Bills. How much would a man age 53 need to deposit today in each of these traditional asset classes in

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slide1
Life Insurance as an Alternative Asset
  • Traditional Asset Class Returns –
  • (25 years 1986-2010)

Life Insurance

as an

Alternative Asset Class

5.0%

Treasury Bills

How much would a man age 53

need to deposit today in each of

these traditional asset classes in

order for his investment to grow to

$10,000,000 by his life expectancy?

8.5%

Corporate Bonds

9.7%

U.S. Stocks

8.4%

Real Estate

Sources: Treasury Bills - US Treasury 90 day Bills, Corporate Bonds – Barclay’s Capital US Credit, US Stocks - S&P 500, Real Estate - NCREIF

slide2
Life Insurance as an Alternative Asset

Male 53 Pref Non-Tobacco

Single Deposit required to grow to $10,000,000 by life expectancy (1,2)

5,000,000

$4,130,533

4,000,000

3,000,000

$2,265,004

$2,303,764

$2,234,013

$1,851,123

2,000,000

1,000,000

Bonds

Stocks

Real

Estate

Life

Insurance(3)

T Bills

(1) 25.3 yrs US Life Table (sex distinct)

(2) 25 yr avg. (1986-2010) returns taxed @ 28%

90 day T-Bills 5.00%, Bonds 8.50% – Barclay’s Capital US Credit, Stocks 9.70% - S&P 500, Real Estate 8.4% - NCREIF

(3) Full Lifetime Guarantee premium using Lincoln LifeGuarantee UL 2012, premium to guarantee to LE $1,980,000

slide3
Stocks

Life Insurance

Bonds

Real Estate

T-Bills

Life Insurance as an Alternative Asset

Historical Risk / Return Characteristics

of Combined Traditional Asset Classes

Modern Portfolio Theory

Historical Risk / Return Characteristics

of Traditional Asset Classes

Expected Return

Non Correlation

Guaranteed

DB @ LE

Risk Adjusted Return Measure

(TOTAL RETURN - RISK FREE RETURN)

SHARPE

RATIO

=

STANDARD DEVIATION

Expected Risk

(Standard Deviation)

slide4
“In the long run

we are all dead”

John Maynard Keynes

The General Theory

of Employment, Interest and Money 1936

slide5
Facsimile

Email

Values(1) Dividends

Pay Phones

Asset Allocation Annual Returns (3)

Dial Up

Mutual Funds

40

S&P 500 Annual Returns Indexed Annual Returns (2)

Cell Phones

ETF’s

High Speed

30

VHS

20

VCR

Day Trading

10

High Speed

0

‘91

‘92

‘93

‘94

‘95

‘96

‘97

‘98

‘99

‘00

‘01

‘03

‘04

‘05

‘06

‘10

‘02

‘07

‘08

‘09

Alcohol

-10

Texting

-20

Hard Line

-30

Cell Phones

-40

Economics of Indexed Universal Life

Sample S&P 500 Indexing Methodology

1991-2010

Sell

Option

13%

Safe Range of

possible earnings

1%

Purchase

Option

“ I took the initiative

in creating the internet.”

Al Gore

Inventor

3-11-99

on CNN

(1)One-year S&P 500 Index % change. Past performances of the S&P 500 index is no guarantee of future changes or future index earnings.

(2)One-year Point-to-Point Indexed Account – receives indexed interest linked to the percentage change of the S&P 500 over the segment year.

(3)Asset Allocation: 65% S&P 500, 20%MSCI World Ex-US, 15%Barclays Capital U.S. Aggregate.

slide6
“The portfolio has proved to be

riskier, more volatile and less effective

as an economic hedge than we thought.”

May 11, 2012

Describing a $2B loss on a portfolio designed to manage risk

Jamie Dimon

CEO JPMorgan Chase Bank

slide7
Economics of Indexed Universal Life

- What a difference a Millennium makes -

25

Last Decade 1991- 2000

First Decade 2001- 2010

S&P 500

Asset

Allocation

Historical Returns

13% Cap

1% Floor

TBills

0

0

25

Historical Risk

(Standard Deviation)

Data sources: Annual Standard & Poors 500 Index with dividends, 13% Cap & 1% Floor excluding dividends

Asset Allocation: 65% S&P 500, 20% MSCI World Ex-US, 15% Barclays Capital U.S. Aggregate.

slide8
Economics of Indexed Universal Life

- What a difference a Millennium makes -

25

Last Decade 1991- 2000

First Decade 2001- 2010

Combined First & Last Decades 1991- 2010

S&P 500

Historical Returns

Asset

Allocation

13% Cap

1% Floor

TBills

0

0

25

Historical Risk

(Standard Deviation)

Data sources: Annual Standard & Poors 500 Index with dividends, 13% Cap & 1% Floor excluding dividends

Asset Allocation: 65% S&P 500, 20% MSCI World Ex-US, 15% Barclays Capital U.S. Aggregate.

slide9
1980

1990

2000

2010

1960

1970

41,578

$1,000 Growth over 50 Years

13% Cap

1% Floor

The power of 1%

Rule 1: NEVER lose principal

Rule 2: NEVER forget rule 1

17,374

S&P 500(1)

(1) Growth based on Annual change in value of S&P500 Index excluding dividends beginning and ending on December 28th.

slide10
Lincoln LifeReserve Indexed UL

Lincoln AssetEdge VUL 2009

90

90

100

100

50

50

LE

LE

70

70

20 yr Accumulation Period

20 yr Distribution Period

The Participating Loan Differentiator

Cash Value Accumulations

$235,000 Opt 2 to 1 Switchassuming 7% net return (1)

F 50 Standard Non Tobacco, $10,000 annual premium yrs 1-20

$33,000 annual withdrawals / loans from yr 21 to 40

The

Participating Loan

Differentiator

AGE

AGE

(1) Lincoln AssetEdge VUL 2009 assuming 7.75% gross / 7.00% net , assuming 0% return no income is available

Lincoln LifeReserve Indexed UL assuming fixed 3.90% (10% allocation) , indexed 7.35% (90% allocation) assuming 1% return no income is available

slide11
The Participating Loan Differentiator

Lincoln LifeReserve Indexed UL Loans

  • Borrow up to 100% of cash surrender value
  • 5% guaranteed loan interest charges
  • Loaned values continue to receive current indexed interest crediting

Loan Example 1

Loan Example 2

7%hypothetical return on borrowed funds

1%guaranteed return on borrowed funds

-

5%guaranteed loan rate(1)

-4%guaranteed debt on loaned funds

+ 2%gain on borrowed funds

Loans and withdrawals will reduce account value and death proceeds

(1) 5% loan rate guaranteed yrs 11+, 6% loan rate guaranteed yrs 1-10

slide12
Interest Credited (2)

23,263

16,896

31,067

46,530

47,415

64,661

55,152

43,899

68,330

89,789

20011.00<4.00>

2002 1.00<4.00 >

200313.008.00

200412.897.89

2005 5.41.41

200613.008.00

2007 3.531.47

2008 1.00<4.00>

200913.008.00

201013.008.00

800

2,414

2,893

1,169

5,589

11,030

17,543

25,182

34,004

28,973

1991 13.00 8.00

1992 12.517.51

1993 6.77 1.77

1994 1.00<4.00>

199513.008.00

199613.008.00

199713.00 8.00

1998 13.008.00

1999 13.008.00

20001.00<4.00>

8%

+ 8%

2.97%

Average

Difference

(1) Lincoln LifeReserve Indexed UL Assuming: Interest crediting based on historical S&P 500 Composite Stock Price Index (excluding dividends) from 2010 through 1991,

LifeReserve Indexed UL (2011) was not available in 1991. Future results are not based on past performance and may be better or worse than those shown.

Interest Charged (1)

- 4%

-4%

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

‘09

‘10

subject to a 13% cap and 1% minimum guarantee using 100% allocated to 1 Year Point to Point crediting method.For illustrative purposes only, since Lincoln

The Participating Loan Differentiator

Historical Loan Interest (1)

Hypothetical Historical (1) $10,000 Annual Loan

1991 through 2010

Credited Loan “Earned”

Year Rate Differential Interest

Credited Loan “Earned”

Year Rate Differential Interest

20 yrs - 1991 - 2010

1991 - 2000

2001 - 2010

13%

13%

13%

3.94%

Average

Loan Interest

Differential

Net Interest

“EARNED”

4.92%

Average

Difference

Potential

Loan Rate

Differential

on Borrowed

money

0%

0%

0%

-5%

-5%

-5%

‘91

‘92

‘93

‘94

‘95

‘96

‘97

‘98

‘99

‘00

‘01

‘91

‘92

‘02

‘03

‘93

‘94

‘04

‘95

‘05

‘06

‘96

‘97

‘07

‘08

‘98

‘09

‘99

‘00

‘10

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