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Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC June 7, 2011

Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC June 7, 2011

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Timothy C. Pfeifer, FSA, MAAAPfeifer Advisory LLC June 7, 2011

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Although industry weathered crisis well generally, focus now

on capital more than profitability.

Innovation took a backseat over the past few years, but is

returning.

Some carriers interested in acquisitions of blocks, not

carriers.

Impact of European accounting regime on U.S. carriers’ views of

risk.

Single most important driver of future product direction is

interest rate levels.

Other Themes – Speed to Market, Process versus Price, Market Demographics

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Rates

Profitability

Trend will be higher rates at most cells, as long as interest rates are low and before PBR

Thin profit margins – conceded to be loss leader for many carriers; 6-7% IRRs

Reinsurance

ReserveManageme

nt

Return to roots as mortality smoother, not capital/profit leverage

Term UL approach will be short-lived; limited financing available

Twenty-year Term will still be linchpin

More Simplified Issue

Higher Average Size

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• Fastest growing life product will continue gathering market share

• New products will feature stronger death benefit guarantees and survivorship versions

• New carriers entering the business, and more to come

• Rainbow/look back versions popular

• Viability enhanced due to verdict on SEC Rule 151A and low interest rates

• Efforts to define illustration standards proceeding, albeit slowly

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Growth will be moderate,

limited to a small number of

carriers

Annuity/LTC Combos will show

very gradual sales traction, but

long-term prognosis is

strong

True LTC benefits require all

infrastructure and regulatory

elements as ‘True’ LTC

Distribution comfort levels

and views toward LTC will be key hurdle – lack of re-commissions

Resolution of some remaining tax issues will

help success of rider

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• Still will be dominant UL• Interest rate rising helps (and PBR)• Price trend is higher

No-Lapse UL

• Operating in a gray area• Soft death benefit guarantees• Higher interest rates needed

Current Assumption UL

• Product in transaction• Sales and market players dropping• Indexed UL-type parameters needed.

Variable UL

• Continued domination by mutual carriers• Tough competitor as long as interest

rates low

• Rebound and expansion of market• Disclosure requirements create greater

awareness

• Return of substandard charges, modal loads

• Income stream death benefits• Charitable/College Funding Kickers

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Whole Life

Life Settlements

Features

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• Sales follow mid-term rates• Steady drops over last year, recent climb

Importance of IR Environment

• Lower minimum crediting• European carriers re-assess• Interest Index Linkages

The Future

• Bonuses• Fewer CD annuities• Lower comp (spread)• Market Value Adjustments

Reaction Steps

Sales strengthening after 151 death

Low volatilities/low interest rates favor FIAs

Banks warming to FIAs

GLWBs driving market, but underpriced?

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New indices and approaches to crediting interest

Some carriers to offer registered versions

Average comp tracking lower

Participation rates returning

Recent Events

Future Events

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• De-risking down to trickle

• ITM-ness dramatically reduced

• Asset Allocation = control device

• Lack of Scale led to departures

• Rating Agency focus

• New designs, fewer asset options

Market Still Led by GLBs and will continue

Recent Events

What’s Next?GLBs on Managed Accounts, FundsReductions in 12 b-1 feesGradual pick-up in A share sales

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Slow traction, success more likely for higherrated carriers

Key is more comp and liquidity (MVA); untilthen, a few carriers dominate; impaired

SPIAs

Appeal in low rate environment; position as aportion of retirement solution

:

:

:

Deferred Income

Annuities

Single Premium Immediate Annuities

Indexed SPIAs

All forms of income annuities likely to be impacted by new payout annuity mortality statistics.

Timothy C. Pfeifer, FSA, MAAAE-mail: [email protected]

www.pfeiferadvisory.com