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MICHAEL FOSBURY PRESIDENT AND CHIEF EXECUTIVE OFFICER

October 11, 2018

Mr. Kevin Fry Chair, Investment Risk-Based Capital (E) Working Group National Association of Insurance Commissioners Via Email: Julie Garber (JGarber@naic.org), Jane Barr (jbarr@naic.org)

Dear Mr. Fry,

Columbian Financial Group is two companies doing business in all 50 States, Washington, DC, The Virgin Islands, and Guam. The two companies are Columbian Mutual Life Insurance Company (a New York domicile) and our wholly owned stock subsidiary Columbian Life Insurance Company (domiciled in your home State of Illinois).

As an emerging life insurer, we consistently balance growth with the need for a strong balance sheet. Our consolidated RBC has grown significantly over the past three years. The proposed Portfolio Adjustment Factor will have a discriminatingly negative impact on smaller companies. The proposed new factor for CLIC would increase our size factor some 22%. The proposed factor for CML would increase that size factor by 7%.

We believe in and understand the inherent conservatism in our business and industry. We have been proudly meeting our policyholder needs since 1883. The concern we have is that the changes proposed target smaller companies disproportionately, and unjustly. The Portfolio Adjustment Factor for a bigger company with 1,000 issues would actually see their size factor reduced. Frankly, our actuaries and many of their brethren see no technical reason for the changes. Indeed, I would support more onerous diversification standards if in fact, the American Academy of Actuaries could justify their contention that the increased diversification

COLUMBIAN FINANCIAL GROUP

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factors actually reduced risk commensurate with the factors suggested. Since they cannot, the new factors are inherently unfair towards small companies.

CFG as an ACLI member company, and I as an active ACLI Forum 500 Board of Governors member, support the comment letters submitted regarding the C-1 proposals. I would ask you to seriously reconsider the suggested Portfolio Adjustment Factors, and set them at a more reasonable level that does not discriminate, for no legitimate reason, small companies.

Thank you for your attention to this matter and the work you do for Illinois and the NAIC to keep our industry strong.

Sincerely,

Michael C. S. Fosbury President and CEO

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Steven Clayburn Senior Actuary, Health Insurance & Reinsurance

steveclayburn@acli.com

October 15, 2018

Mr. Kevin Fry, Chair

NAIC Investment Risk-Based Capital Working Group

110 Walnut Street, Suite 1500

Kansas City, MO 64106-2197

RE: Risk Premium (RP) Assumptions Exposure – C-1 Working Group (Academy)

Dear Mr. Fry:

The American Council of Life Insurers1 (ACLI) appreciates the opportunity to comment on the most recent

American Academy of Actuaries (“Academy”) letter dated July 17, 2018, exposed by the Investment Risk-

Based Capital Working Group (“Working Group”) during its August 5, 2018 meeting, and its follow-up

October 10, 2017 report (“Report”), which provided some additional sensitivity analysis related to the

risk premium offset.

Executive Summary

We appreciate the Academy’s consideration of refinements to its October 2017 recommendation and

modeling of sensitivities. Although we arrive at a different conclusion than the Academy regarding the

appropriateness of its proposed factors, we believe that the Working Group can use the Academy’s

sensitivity results to develop C-1 bond factors that reflect the desired increase in granularity, are

consistent with the risks of a credit portfolio, reflect the diversity of asset types, and produce a rational

scale of capital charges.

To this end, the ACLI proposes a compromise, based on the sensitivity test result provided by the

Academy, designed to address the broad concerns we have with the current Academy recommendation.

Details regarding the ACLI concerns and how we believe our recommendation can help address them are

covered in the next section of this letter.

ACLI’s Concerns and Proposed Compromise

ACLI’s two broad concerns about the proposed factors in the Report are that the overall level of the

proposed factors is too high relative to emerging history and the slope is too flat relative to other capital

models, including the current C-1 charges. We believe that several technical, but significant modeling

shortcomings documented in previous letters, contribute to these outcomes.

1 ACLI advocates on behalf of 290 member companies dedicated to providing products and services that promote consumers’ financial and

retirement security. 90 million American families depend on our members for life insurance, annuities, retirement plans, long-term care

insurance, disability income insurance, reinsurance, dental and vision and other supplemental benefits. ACLI represents member companies in

state, federal and international forums for public policy that supports the industry marketplace and the families that rely on life insurers’

products for peace of mind. ACLI members represent 95 percent of industry assets in the United States.

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To address these concerns, we recommended two surgical refinements to the C-1 model. First, we had

recommended increasing the assumed discount rate to better align it with the expected returns from

company investment portfolios. We are disappointed that this recommendation was not pursued.

Second, we recommended modifications to the assumed “risk premium” to address double-counting.

The Academy’s modeling assumed that reserves cover an average level of defaults, while statutory

reserves conceptually cover a “moderately adverse” level of risk. We believe that this effectively double-

counts a provision for risk, resulting in asset risk charges that are excessively protective. This double-

counting is amplified, as most insurers hold surplus in multiples of the minimum RBC requirements.

The Academy’s July 17 letter expresses reluctance to modify the risk premium on the premise that it

would weaken the protections provided by the overall statutory framework, including statutory reserves

and the asset valuation reserve (AVR). We believe that the Academy is viewing AVR as another form of

risk capital, perceiving a one-to-one relationship between the AVR contribution and the risk premium.

The statutory framework, however, considers AVR to be an allocation of surplus, a somewhat arbitrary

apportionment of assets to smooth the cyclicality of asset defaults; it is not a quantification of risk. This

view is supported by the fact that the RBC formula includes AVR in available capital (i.e., an allocation of

surplus) but excludes AVR from required capital (i.e., not a risk buffer). Consequently, addressing

double-counting within the risk premium will not weaken policyholder protections below the intended

levels.

To address both the level and slope of the risk charges, ACLI proposes a compromise that leverages the

Academy’s modeling by utilizing graded risk premium percentile offsets to the proposed C-1 bond

factors. While statutory reserves are often perceived to provide a level of protection up to the 85th

percentile, simply adopting a higher risk premium offset will not address the slope issue.

As the figure indicates, we propose: an 83rd percentile risk premium to higher investment grades (NAIC

1), a 75th percentile risk premium to lower investment grades (NAIC 2), and the mean risk premium

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(approximately the 60th percentile) to below investment grades (NAIC 3 or higher). We believe that this

compromise can reasonably address the double counting in C-1 where reserves and capital cover the

same losses as well as the “slope” of the proposed factors.

In addition to reducing the overall impact, it avoids perverse incentives to invest in riskier assets.

Finally, while our prior communications to the Working Group have focused primarily on the base factors,

we note that the slope and magnitude of the new portfolio adjustment factors are non-intuitive.

Candidly, very little documentation of these factor characteristics has been provided to date.

Specifically, no transparency has been provided by the Academy that establishes how the new portfolio

adjustment factors are representative of targeting a 96th percentile capital objective. Without such

transparency, ACLI is unable verify the modeling done to arrive at those factors. Therefore, we can only

point out that the factors will overly punish small to medium size carriers. For many smaller insurers, the

new portfolio adjustment factor will account for approximately half of the C-1 capital increase. We are

not aware of empirical data validating such drastic increases to smaller carrier credit risk provisioning

and request the Working Group consider potential portfolio adjustment factor modifications to address

this issue. One possible suggestion is to apply a cap to the overall calculated factor. We continue to

believe that universal understanding of the nuances around the portfolio adjustment factors can be

achieved with further consideration.

In the appendices to this letter, we describe the proposed, base factor compromise in additional detail.

We note that our proposal does not reflect the new corporate tax rate. In addition, there needs to be

clarity regarding the definition of the portfolio adjustment definition of an “issuer”; this is necessary to

determine the number of issuers. These items can be addressed after the Working Group agrees to a

proposed framework.

We look forward to additional discussions the Working Group as we work to conclude the project.

Sincerely,

Steven Clayburn

cc: Julie Garber, CPA, Sr. Manager, Solvency Regulation, NAIC

Jane Barr, Company Licensing and RBC Manager, NAIC

Attachment Four

Appendix 1: ACLI’s Core Concerns and Solutions

1. RBC Increases and Double-Counting of Risk

Issue: Double Counting

The current proposal would result in material RBC increases across the industry. ACLI survey results2

substantiate the observation that the impact of the proposed changes will be significant, especially for

smaller insurers. The impact noted in our survey indicates an approximate $10 billion increase in C-1

capital versus the estimated $6 billion mentioned in the Academy’s work. The increases would be most

significant for smaller companies, in some instances exceeding 35% (excluding

diversification/covariance effects).

Results by # of Issuers

# of Issuers Increase/(Decrease) in C-1o Capital

< 100 issuers 36%

100 < issuers < 500 24%

Over 500 Issuers 7%

Results by Size

Size of Insurer (Total Invested Assets) Increase/(Decrease) In C-1o Capital

< .5 billion 37%

.5 – 1 billion 30%

1 – 2.5 billion 15%

2.5 – 5 billion 17%

5 – 10 billion 10%

10 – 25 billion 15%

25 billion 6%

Contributing to the magnitude of the proposed asset factors is an implicit double-counting in which both

reserves and capital are held to cover the same potential losses.

Historically, statutory reserves were intended to cover all types of unexpected losses at a moderately

adverse level of prudence. Although formulaic reserves have not achieved this objective in every

circumstance, new principle-based reserving methods more explicitly include moderately adverse asset

default losses. We believe it is reasonable to assume that reserves include a moderately adverse level

of prudence for asset default losses.

In the following graphic, we show there is the potential double counting when holding reserves and

capital for the same potential losses:

2 The compiled survey results represent 57% of 12/31/2016 Reported Invested Assets (and approximately 56% of bonds).

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Due to the skewed nature of default risk, the mean is approximately the 60th percentile, whereas it

would be nearer the 50th percentile for a less skewed distribution. Principle-based reserves (PBR)

explicitly covers CTE 70 default costs. CTE 70 default costs are approximately at the 88th percentile.

Implicit margins in formulaic reserve valuations are generally as large or larger than the margins in PBR

reserves. ACLI created a 35-year history of Standard Valuation Law (SVL) rates and calculated the

margins of those rates for life insurance and annuities (both annuities with cash settlement options and

single premium immediate annuities).3 While it is impossible to determine precisely the level of defaults

covered in reserves, this work clearly indicates that defaults are covered at a higher percentile than the

mean. As we move to PBR, more and more defaults will explicitly be covered by the reserves. And that

move will come more quickly than anticipated, as the entire block of variable annuity contract reserves

will be calculated using the VM-20 bond default rates beginning in 2020 and VM-22 will be applied in

many instances upon the annuitization of in force deferred annuities.

Under our proposed compromise, as shown in the graphic on the following page, all representative

portfolios4 will experience some increase in C-1 capital, but it would be somewhat moderated, and this

result would much better reflect recent experience. As the chart shows, the biggest benefit will go to the

smallest companies, cutting the company action level (CAL) RBC impact nearly in half.

3 Please Appendix 2 for the SVL rate work. 4 Representative portfolios are the seven portfolios utilized by the Academy in its modeling and documented in its August 2015 report.

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Impact on C-1 Capital and on RBC--Post-Tax5

(Representative portfolios 1 – 7 are read from left to right with portfolio 6 being the Academy’s industry indicative portfolio)

Overall, recent default experience does not seem to support increases of the magnitude with the current

proposed factors. Even under the ACLI proposal, the increase is still significant for smaller companies

and is being driven by changes recommended by the Academy to the portfolio adjustment factor (PAF)

which takes account of the diversification benefits from large portfolios. The PAF is now much more

punitive for smaller companies.

2. Unintended Changes in Incentives and Graded Risk Premiums

As indicated, the second ACLI concern is that the slope of the proposed factors is too flat compared to

other capital models. As evidence of this, the following graph illustrates the relationship of the proposed

B2 and A2 capital factors with the relationship in the ACLI proposal and in several rating agency capital

models.

5 Estimated using NAIC’s C1 Factor Impact Analysis Spreadsheet and Academy Working Group’s 7 indicative portfolios for various company

sizes. Spreadsheet estimates are necessarily simplified but provide reasonable materiality data points.

62%

39%

31%

24%22%

19%

15%

31%

17%

12%9% 7%

5%3%

0%

10%

20%

30%

40%

50%

60%

70%

SmallestCompanies

LargestCompanies

Per

cen

t In

crea

se in

C1

Sept '17 Proposal

ACLI Risk Premium - 83/75/60

(102)

(67)

(55)

(44)(40)

(36)

(27)

(56)

(31)

(23)(16) (13)

(10)(5)

-120

-100

-80

-60

-40

-20

0

Dec

rea

se i

n R

BC

Po

ints

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We continue to believe the slope issue with the Academy proposal may be related to flaws in the

methodology. While it would be ideal if the flaws could be fixed, in the interest of expediency, we believe

ACLI’s compromise proposal maintains a more rational trade-off for carriers between investing in

investment grade and high yield bonds. In addition, the proposal is justifiable, and conservative given the

level of protection already built into the system through the reserves. This graphic helps illustrate that:

C1 Pre-Tax Factors (Current Proposal and ACLI’s Compromise Proposal)

0

5

10

15

20

25

30

35

A2 B2

Relationship of B2 and A2 Capital Charges

Current RBC (BT) Proposed RBC (BT) ACLI Proposal

BCAR 95% VaR (5y) S&P Single A (5-10y)

0.10%

1.00%

10.00%

100.00%

Aaa

Aa1

Aa2

Aa3

A1 A2 A3

Baa1

Baa2

Baa3 Ba

1

Ba2

Ba3 B1 B2 B3

Caa1

Caa2

Caa3

Pre-

tax

Fact

ors

(log

sca

le) Current

Sept '17 Proposal

ACLI Risk Premium = 83/75/60

-100%

-50%

0%

50%

100%

150%

200%

250%

Aaa

Aa1

Aa2

Aa3

A1 A2 A3

Baa1

Baa2

Baa3 Ba

1

Ba2

Ba3 B1 B2 B3

Caa1

Caa2

Caa3

% C

hang

e

Capital increases for high quality bonds drop from >200% in the Academy framework to 95% under the ACLI proposal

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The current proposed factors (labeled as “Sept ’17 Proposal”) implies that the relationship between

investment grade and below investment grade risks have materially changed. Life insurers hold

approximately $3 Trillion in bonds, approximately 95% in investment grade where factors would increase

the most if the current Academy proposed factors are adopted as is.

The structure of the proposed factors could also influence future investment decisions and allocations

as they make investment grade assets less attractive and below-investment grade assets more

attractive and could lead to unintended consequences where companies take on too much risk. As

shown in the following chart, a company could increase below investment grade (BIG) exposure by ~50%

without an increase in required capital.

Bond Rating

After

Tax

Current

Factors

After Tax

Academy

Proposed

Factors

NAIC

Medium

Quality

Allocation

Reducing BBB+/BBB

Allocation by 1/3 into AAA

Structured & BIG

Change New Allocation

AAA (Treasuries) 0.00% 0.00% 0.00% 0.00%

AAA 0.30% 0.23% 2.75% 9.36% 12.11%

AA+ 0.30% 0.32% 2.75% 2.75%

AA 0.30% 0.42% 6.50% 6.50%

AA- 0.30% 0.53% 3.50% 3.50%

A+ 0.30% 0.63% 8.75% 8.75%

A 0.30% 0.78% 14.50% 14.50%

A- 0.30% 0.91% 11.50% 11.50%

BBB+ 0.96% 1.05% 18.00% -6.00% 12.00%

BBB 0.96% 1.25% 18.50% -6.17% 12.33%

BBB- 0.96% 1.48% 7.50% 7.50%

BB+ 3.39% 2.77% 1.50% 0.73% 2.23%

BB 3.39% 3.51% 1.25% 0.61% 1.86%

BB- 3.39% 4.54% 1.25% 0.61% 1.86%

B+ 7.38% 4.68% 1.00% 0.49% 1.49%

B 7.38% 6.30% 0.50% 0.24% 0.74%

B- 7.38% 8.72% 0.25% 0.12% 0.37%

CCC+ 16.96% 12.77% 0.00% 0.00%

CCC 16.96% 17.12% 0.00% 0.00%

CCC- 16.96% 22.13% 0.00% 0.00%

Below CCC 19.50% 30.00% 0.00%

Total Bond

Allocation 100.00% 100.00%

Current Factor C1 0.81% 0.85%

Academy

Proposed Factor

C1 0.95% 0.95%

Total BIG

Allocation 5.75% 2.81% 8.56%

ACLI’s compromise proposal will improve the slope and reduce the potential for such unintended

consequences.

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Excess Chg in fund (C ) Excess Excess

VM-22 weights: 5.00% 0.00% 5.00% 5.00% 5.00% 13.33% 13.33% 13.33% 13.33% 13.33% 13.33% Blended Average Standard Margin Standard Margin Standard Margin

Historical PBR using of next Valuation Over Valuation Over Valuation Over

Bond Average Default Year 20 Year VM-22 wghts 20 years* Law Rate CTE 70* Law Rate CTE 70 Law Rate CTE 70

Rating Spread Costs Treasury Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3

Aaa 0.94% 0.00% 1984 12.48% 13.41% 13.56% 13.70% 13.73% 13.74% 13.72% 13.88% 13.97% 14.01% 14.00% 13.78% 8.83% 6.00% 2.83% 7.00% 6.78% 11.25% 2.53%

Aa1 1.10% 0.02% 1985 10.97% 11.91% 12.05% 12.20% 12.22% 12.24% 12.21% 12.38% 12.47% 12.50% 12.49% 12.28% 8.46% 6.00% 2.46% 7.00% 5.28% 11.00% 1.28%

Aa2 1.26% 0.03% 1986 7.85% 8.79% 8.93% 9.08% 9.10% 9.12% 9.09% 9.26% 9.35% 9.38% 9.37% 9.16% 8.14% 6.00% 2.14% 6.00% 3.16% 9.25% -0.09%

Aa3 1.32% 0.07% 1987 8.58% 9.52% 9.66% 9.81% 9.83% 9.85% 9.82% 9.99% 10.08% 10.11% 10.10% 9.89% 8.00% 5.50% 2.50% 5.50% 4.39% 8.00% 1.89%

A1 1.39% 0.12% 1988 8.96% 9.90% 10.04% 10.18% 10.21% 10.23% 10.20% 10.37% 10.46% 10.49% 10.48% 10.27% 7.81% 5.50% 2.31% 6.00% 4.27% 8.75% 1.52%

A2 1.45% 0.21% 1989 8.45% 9.39% 9.53% 9.67% 9.70% 9.72% 9.69% 9.86% 9.95% 9.98% 9.97% 9.76% 7.58% 5.50% 2.08% 5.75% 4.01% 8.75% 1.01%

A3 1.67% 0.26% 1990 8.61% 9.55% 9.69% 9.83% 9.86% 9.88% 9.85% 10.02% 10.10% 10.14% 10.13% 9.91% 7.37% 5.50% 1.87% 5.50% 4.41% 8.25% 1.66%

Baa1 1.88% 0.38% 1991 8.14% 9.07% 9.22% 9.36% 9.39% 9.40% 9.37% 9.54% 9.63% 9.67% 9.66% 9.44% 7.14% 5.50% 1.64% 5.75% 3.69% 8.25% 1.19%

Baa2 2.09% 0.56% 1992 7.67% 8.60% 8.75% 8.89% 8.92% 8.93% 8.91% 9.07% 9.16% 9.20% 9.19% 8.97% 6.91% 5.50% 1.41% 5.25% 3.72% 7.75% 1.22%

Baa3 2.54% 1.02% 1993 6.60% 7.54% 7.68% 7.82% 7.85% 7.87% 7.84% 8.01% 8.09% 8.13% 8.12% 7.90% 6.65% 5.00% 1.65% 5.00% 2.90% 7.00% 0.90%

1994 7.49% 8.42% 8.57% 8.71% 8.74% 8.75% 8.73% 8.89% 8.98% 9.02% 9.01% 8.79% 6.48% 5.00% 1.48% 4.75% 4.04% 6.50% 2.29%

1995 6.96% 7.90% 8.04% 8.19% 8.21% 8.23% 8.20% 8.37% 8.46% 8.49% 8.48% 8.27% 6.26% 4.50% 1.76% 5.25% 3.02% 7.25% 1.02%

1996 6.82% 7.76% 7.91% 8.05% 8.07% 8.09% 8.06% 8.23% 8.32% 8.35% 8.35% 8.13% 6.04% 4.50% 1.54% 4.75% 3.38% 6.75% 1.38%

1997 6.68% 7.62% 7.77% 7.91% 7.93% 7.95% 7.92% 8.09% 8.18% 8.21% 8.21% 7.99% 5.81% 4.50% 1.31% 5.00% 2.99% 6.75% 1.24%

1998 5.72% 6.66% 6.80% 6.94% 6.97% 6.99% 6.96% 7.13% 7.21% 7.25% 7.24% 7.02% 5.61% 4.50% 1.11% 4.75% 2.27% 6.25% 0.77%

1999 6.19% 7.13% 7.27% 7.42% 7.44% 7.46% 7.43% 7.60% 7.69% 7.72% 7.71% 7.50% 5.47% 4.50% 0.97% 4.50% 3.00% 6.25% 1.25%

2000 6.23% 7.17% 7.31% 7.46% 7.48% 7.50% 7.47% 7.64% 7.73% 7.76% 7.75% 7.54% 5.31% 4.50% 0.81% 5.00% 2.54% 7.00% 0.54%

2001 5.63% 6.57% 6.71% 6.86% 6.88% 6.90% 6.87% 7.04% 7.13% 7.16% 7.15% 6.94% 5.14% 4.50% 0.64% 5.00% 1.94% 6.75% 0.19%

2002 5.43% 6.37% 6.51% 6.66% 6.68% 6.70% 6.67% 6.84% 6.93% 6.96% 6.95% 6.74% 5.01% 4.50% 0.51% 4.75% 1.99% 6.50% 0.24%

2003 4.96% 5.90% 6.04% 6.18% 6.21% 6.23% 6.20% 6.36% 6.45% 6.49% 6.48% 6.26% 4.89% 4.50% 0.39% 4.50% 1.76% 6.00% 0.26%

2004 5.05% 5.98% 6.13% 6.27% 6.30% 6.31% 6.29% 6.45% 6.54% 6.58% 6.57% 6.35% 4.79% 4.50% 0.29% 4.25% 2.10% 5.50% 0.85%

2005 4.65% 5.58% 5.73% 5.87% 5.90% 5.91% 5.88% 6.05% 6.14% 6.18% 6.17% 5.95% 4.68% 4.50% 0.18% 4.00% 1.95% 5.25% 0.70%

2006 4.99% 5.93% 6.08% 6.22% 6.24% 6.26% 6.23% 6.40% 6.49% 6.52% 6.52% 6.30% 4.60% 4.00% 0.60% 4.25% 2.05% 5.25% 1.05%

2007 4.91% 5.85% 5.99% 6.13% 6.16% 6.18% 6.15% 6.32% 6.40% 6.44% 6.43% 6.21% 4.49% 4.00% 0.49% 4.25% 1.96% 5.50% 0.71%

2008 4.36% 5.30% 5.45% 5.59% 5.61% 5.63% 5.60% 5.77% 5.86% 5.89% 5.89% 5.67% 4.40% 4.00% 0.40% 4.25% 1.42% 5.50% 0.17%

2009 4.11% 5.05% 5.19% 5.33% 5.36% 5.38% 5.35% 5.51% 5.60% 5.64% 5.63% 5.41% 4.32% 4.00% 0.32% 4.25% 1.16% 6.00% -0.59%

2010 4.03% 4.97% 5.11% 5.26% 5.28% 5.30% 5.27% 5.44% 5.53% 5.56% 5.55% 5.34% 4.27% 4.00% 0.27% 4.50% 0.84% 5.25% 0.09%

2011 3.62% 4.56% 4.70% 4.85% 4.87% 4.89% 4.86% 5.03% 5.12% 5.15% 5.14% 4.93% 4.23% 4.00% 0.23% 4.00% 0.93% 5.00% -0.07%

2012 2.54% 3.48% 3.63% 3.77% 3.79% 3.81% 3.78% 3.95% 4.04% 4.07% 4.07% 3.85% 4.20% 4.00% 0.20% 3.50% 0.35% 4.25% -0.40%

2013 3.12% 4.06% 4.20% 4.34% 4.37% 4.39% 4.36% 4.53% 4.62% 4.65% 4.64% 4.43% 4.23% 3.50% 0.73% 3.50% 0.93% 4.00% 0.43%

2014 3.07% 4.01% 4.16% 4.30% 4.32% 4.34% 4.31% 4.48% 4.57% 4.60% 4.60% 4.38% 4.23% 3.50% 0.73% 3.75% 0.63% 4.50% -0.12%

2015 2.55% 3.48% 3.63% 3.77% 3.80% 3.81% 3.79% 3.95% 4.04% 4.08% 4.07% 3.85% 4.23% 3.50% 0.73% 3.50% 0.35% 4.00% -0.15%

2016 2.23% 3.16% 3.31% 3.45% 3.48% 3.49% 3.46% 3.63% 3.72% 3.76% 3.75% 3.53% 4.25% 3.50% 0.75% 3.50% 0.03% 4.00% -0.47%

2017 2.65% 3.59% 3.74% 3.88% 3.90% 3.92% 3.89% 4.06% 4.15% 4.18% 4.18% 3.96% 4.30% 3.50% 0.80% 3.50% 0.46% 3.75% 0.21%

2018 2.95% 3.89% 4.03% 4.18% 4.20% 4.22% 4.19% 4.36% 4.45% 4.48% 4.47% 4.26% 4.32% 3.50% 0.82% 3.50% 0.76% 3.75% 0.51%

35-Year

Average 7.17% 5.67% 4.56% 4.73% 6.45%

*-Long Life SVL Rate is compared to 20 year forward looking average to account for annual premium payments

The next 10 years are assumed to be flat with 2018 (4.26%), and the following 10 years are assumed to be at the average rate for 2009-2019 (4.39%)

Appendix 2

20 yr. Tresury + Average Spreads- CTE70 Default Costs

Comparison of Market Rates with Defaults at CTE 70

With Interest Rates Used By Standard Valuation Law

Life Insurance

Annuities with

Cash Settlement Options

Single Premium

Immediate Annuities

Attachment Four

Attachment Four

Attachment Four

Attachment Four