The Changing Individual Annuity Market · Dominant distribution channel varies by product type 2012 Annuity Market Share by Product Types Source: U.S. Individual Annuities survey,

Joseph Montminy Assistant Vice President, LIMRA

This publication is a benefit of LIMRA membership. No part may be shared with other organizations

or reproduced in any form without LIMRA’s written permission.

The Changing Individual

Annuity Market

© LL Global, Inc.SM 2

Topics covered today:

o Annuity sales and market trends

o GLB elections and utilization rates

o Guaranteed lifetime income opportunity

This presentation is a benefit of LIMRA membership. No part may be shared with other organizations or

reproduced in any form without LIMRA's written permission.

Agenda

© LL Global, Inc.SM

The ‘new normal’ for the annuity industry

• Costs of hedging are very high

• Fund out-flow from equity to bonds

Volatile Equity Market

Unprecedented Low Interest Rates

Consumers Demand for Guarantee

Regulations & Capital Requirements

• The Fed to keep interest rate low until 2015

• Low fixed rate returns across the board

• More severe impact on the insurance companies than the financial crisis was.

• After the 2008-2009 market tumble, demand for annuity’s living benefit guarantees remain high

• ‘Income now’ and ‘Income later’ market

• High capital and reserve requirements for U.S. companies

• The Dodd-Franks Act

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Variable and fixed annuity sales declined in 2012

36.7

29.2 23.6 21.1 19.3 21.8 21.4 19.4 20.0 21.3 20.3 18.9 18.1 18.6 17.9 17.7

31.0

32.1

31.9 33.0

32.2

35.2 34.6 38.5 39.5 40.6

39.8 38.0

36.9 38.7

36.8 35.0

$67.7

$61.3

$55.5 $54.1

$51.5

$57.0 $56.0 $57.9

$59.5 $61.9

$60.1

$56.9 $55.0

$57.3 $54.7

$52.7

1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12

Variable Fixed

Source: U.S. Individual Annuities survey, LIMRA

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Quarterly sales represent total VA sales.

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$2.1

$6.8

$3.8 $3.7

$8.6

$3.6

$1.5

$4.4

$3.5 $3.4

$1.8

$3.2 $2.8

$2.2

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Prudential Annuities MetLife Jackson National

TIAA-CREF Lincoln Financial AXA Equitable

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Top companies are carefully managing variable

annuity business


Indexed annuity sales hit record high; Fixed-rate

deferred annuity sales drop

Source: U.S. Individual Annuities survey, LIMRA.

Fixed-rate deferred annuities = book value + market value adjusted annuities.

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$7.2 $8.2 $7.5 $7.0 $7.0 $8.2 $8.7 $8.2 $7.1 $8.1 $8.7 $8.3 $8.1 $8.6 $8.7 $8.5

$19.0 $14.1

$10.6 $9.5

$7.9 $8.4 $7.4

$6.6 $8.5 $8.3 $6.9

$6.2 $5.8 $5.5 $5.0 $4.9

$7.0

$3.5

$2.4

$1.5

$1.3

$1.6 $1.8 $1.4

$1.4 $1.4

$1.2 $1.2 $1.3 $1.2 $1.0 $1.0

$1.9

$2.0

$1.8

$1.8

$1.7

$2.1 $2.0

$1.8 $1.8

$2.2 $2.2

$1.9 $1.8 $1.9 $2.0 $2.0

$1.6

$1.4

$1.3

$1.3

$1.4

$1.5 $1.5

$1.4 $1.2

$1.3 $1.3

$1.3 $1.1 $1.4 $1.2 $1.3

$36.7

$29.2

$23.6

$21.1

$19.3

$21.8 $21.4

$19.4 $20.0 $21.3

$20.3 $18.9

$18.1 $18.6 $17.9 $17.7

1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12

Struct. Settlements SPIA MVA Book value Indexed

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$1.12 $1.24

$1.03

$0.60

$0.98

$2.34

$0.73

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Allianz Security Benefit American Equity AVIVA

Indexed Annuity Sales

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Security Benefit rapidly moves to #2 indexed annuity spot


Dominant distribution channel varies by product type

2012 Annuity Market Share by Product Types

Source: U.S. Individual Annuities survey, LIMRA,

Fixed-rate deferred excludes structured settlements. Fixed-rate deferred annuities = book value + market value adjusted annuities.

Fixed-Rate Deferred Indexed Deferred

30%

5% 9% 34%

18%

4%

9% 3% 1%

5%

82%

Banks Indep. B-D

Full Service Natl. B-D Career Agents

Indep. Agents Direct & Others

12%

33% 17%

25%

1%

12%

Variable Deferred

Third party

62%

15%

8%

22% 32%

19%

4%

Fixed Immediate Income

Third party

45%

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67%

62% 64%

70% 69% 71% 71%

74%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2011 2012

Source: Variable and Indexed Annuity Guaranteed Lifetime Withdrawal Benefit Elections Quarterly Surveys, LIMRA 2013.

Election rates are based on when any GLB riders are available.

Indexed Annuity GLWB Election Rates

Variable Annuity GLB Election Rates

GLBs are driving VA and Indexed annuity sales

88% 88% 88% 90% 90%

88% 87%

84%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2011 2012

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IRAs are an important source of funding

41%

49%

58%

62%

59%

51%

42%

38%

'00 '02 '04 '06 '08 '10 '12

IRA

Nonqualified


Retail = IRA + Nonqualified annuity sales.

Fixed-rate deferred annuities = book value + market value adjusted annuities.

49%

57%

61%

51%

50%

43%

39%

'06 '07 '08 '09 '10 '11 '12

IRA

Nonqualified

28%

34%

29%

39%

72%

66%

71%

61%

'06 '07 '08 '09 '10 '11 '12

IRA

Nonqualified

Percent of Deferred Variable

Annuity Retail Sales

Percent of Deferred Indexed


Percent of Deferred Fixed-Rate



The rollover market will grow to $575 billion by 2016

$205

$432

$575

1998 2000 2002 2004 2006 2008E 2010E 2012E 2014E 2016E

Note: Shaded bars (years 2008 through 2016) are estimates/projections.

Sources: Investment Company Institute, The IRA Investor Profile: Traditional IRA Investors’ Rollover Activity, 2007 and 2008 (2010),

and LIMRA analysis.

Retirement Income Reference Book, LIMRA 2012

11

IRA Rollovers

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Referrals can help you grow your annuity business

Top Reason to buy annuity:

Supplement Social Security or pension income

Own multiple annuities:

High Level of understanding: (top 2 box out of 7)

Before purchase

After purchase

Source: U. S. Deferred Annuity Buyers Attitudes and Preferences, LIMRA, 2012. Survey based on 1,200 deferred annuity buyers

(440-VA, 229-indexed, and 531-Traditional fixed) who have purchased an annuity in the last 3 years - the most recent purchase is a

deferred variable annuity and current age is 40 years or more.

Page 12

VA Indexed Traditional

Fixed

21%

49%

18%

50%

21%

47%

62% 59% 48%

55 % 46% 42%

75% 83% 86% Satisfaction:

Very or somewhat satisfied

Will recommend:

Very or somewhat likely to recommend 83% 85% 83%


Two-thirds of VA GLWB buyers were Baby Boomers

Note: Based on 384,761 GLWB contracts issued in 2011.

Source: Guaranteed Living Benefit Utilization Study – 2011 Data, LIMRA 2013.

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Percent of VA GLWB buyers by age

0.0%

2.0%

4.0%

6.0%

30 35 40 45 50 55 60 65 70 75 80 85

Percentage of buyers

Age of Buyer

Baby Boomers

68%


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71%

52%

71%

47%

29%

48%

29%

53%

Age less than 70 Age 70 and above Age less than 70 Age 70 and above

Issued before 2011 Issued in 2011

Nonqualified IRA


Young buyers use qualified money to buy VA GLWBs

Percent of VA GLWB Owners by Sources of Funds


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0%

25%

50%

75%

100%

Under age 50

51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 Age 85 and over

Percentage of owners taking withdrawals

Current Age of Owner

IRA Nonqualified

Age 70

Source of money influences VA GLWB withdrawal behavior


GLWB utilization by source of funds and age of owners


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50%

82%

50%

84% 91%

0%

25%

50%

75%

100%

Age <50 54 59 64 69 74 79 84

IRA Nonqualified

Systematic withdrawals are the preferred method of withdrawals

Percent of GLWB Owners Taking Withdrawals Through SWPs


Current Age of Owner


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15%

13%

11%

9%

7%

4% 4%

4%

7%

3%

3% 2% 2% 2% 2% 2%

Under 50 50 - 54 55 - 59 60 - 64 65 - 69 70 - 74 75 - 79 80 or older

Current Age

Non-systematic Withdrawals Systematic Withdrawals


Surrender Rate by Mode of GLWB Withdrawals

Owners taking non-systematic withdrawals are more

likely to surrender


There are over 22 million households with assets between

$100,000 and $3.5 million

Source: LIMRA analysis of 2010 Survey of Consumer Finances, Federal Reserve Board, 2012

Households = HH; Baby Boomers are between age 45 to 64 in 2010

$367

$599 $873 $1,673 $2,717 $4,540

17.6 mill HHs 3.7 mill HHs 2.5 mill HHs 2.4 mill HHs 0.5 mill HHs 1.6 mill HHs

Financial Assets Held by Households (HH) by Wealth Status (Dollar in billions)

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Low net worth

Assets<$100k Middle market $100k -$249k

Mass Affluent $250k-$499k

Affluent $500k-$999k

Mega-millionaire 3.5 mil +

High net worth $1mil-$3.5 mil

$515

$820 $1,021 $1,557 $3,169 $3,983

24.9mill HHs 5.0 mill HHs 2.9 mill HHs 2.2 mill HHs 0.5 mill HHs 1.8 mill HHs

Retired

All Ages

Not Retired

Baby Boomers

10.2 million HHs

$5.9 Trillion

11.9 million HHs

$6.6 Trillion

© LL Global, Inc.SM Page 19

$30b $49 $49 $42 $170

$214 $146 $70 $44a $474

Opportunity for Annuity with Guaranteed Lifetime income in Retirement (in billions)

Not Retired

Retired

═

═

Not Retired 37% 48% 37% 38% — 40%

Retired — 29% 29% 23% 13% 21%

Interested in converting a portion of assets into an annuity with guaranteed lifetime income:

Sources: LIMRA analysis of 2010 Survey of Consumer Finances, Federal Reserve Board, 2012 and LIMRA Retirement Study—Consumer Phase, 2012. Based on

5,296 consumers that include 1,533 retirees, 1,391 pre-retirees (age 55+ and not retired), 955 late boomers (age 45 to 54 and not retired), and 1,417 from Gen X and

Gen Y (under age 45 and not retired). The LIMRA analysis is based on retirees, pre-retirees and late boomers aged 45 to 80 with household investable assets

between $100,000 and $2 million.. a Because of the low sample size of not retired aged between 70 to 80, the guaranteed income opportunity of $14.4 billion has

been added with the preceding age group of 65 – 69. b For the same reason, guaranteed income opportunity of $12.1 billion for retiree age group of 45 to 54 has been

added with age group 55-59.

$650 billion of assets are interested in converting a

portion into annuities with guaranteed lifetime income

Age 45-54 60-64 55-59 65-69 70-80 Total


Contact Information:

Joseph Montminy, A.S.A., M.A.A.A.

Assistant Vice President, LIMRA Retirement Research

Phone: (860) 285-7897

E-mail: [email protected]

Thank You

mailto:[email protected]


©2010, LL Global, Inc.SM

This publication is a benefit of LIMRA membership.

No part may be shared with other organizations or reproduced in any form without LL Global’s written permission.

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Documents

The Changing Individual Annuity Market · Dominant distribution channel varies by product type 2012 Annuity Market Share by Product Types Source: U.S. Individual Annuities survey,