FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION AG 49: New Guidelines for Illustrating Index Life Insurance Products Presented by Levi Robinson, CFP , ChFC, CLU, RICP, FLMI Vice President Product Training Chris Ogburn, FSA, MAAA Vice President Product Management Policies issued by American General Life Insurance Company ("AGL) FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION IUL In The News. 3 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Value Proposition Market Upside Downside Protection Long-Term Yield Advantage Over CAUL FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Actuarial Guideline 49 NO CHANGE: American General Lifes products are not changing; this regulation will only impact how our Index Universal Life products are illustrated. NO CHANGE: Our competitive cap rates and participation rates are not affected by the requirements of AG 49. NO CHANGE: The potential amount of index interest that may be credited to a policyholders account is also not affected by AG 49. CHANGE: The way IUL products will be illustrated will be different. Note, these changes to IUL illustrations apply to the entire industry, not just to American General Life. 5 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION IUL History Transamerica Occidental Life Insurance Company rolled-out the first-ever Index UL in January of 1997 in response to rising market conditions and the growing popularity of the similarly-structured index annuity, introduced just two years prior.* Index Universal Lifes design was identical to that of traditional UL (which was developed in the 1970s), but offered the purchaser the ability to earn limited interest based on the performance of a stock market index (without being subject to the losses of the stock market itself).* *Source: Sheryl J. Moores NAIC Comment on IUL Illustrated Rates November 5, 2014 Article 6 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Index UL Market Overview IUL Production Has Shown Growth In The Last Decade IUL represented 53% of UL and 20% of all individual life insurance premium sold during the first half of Source: Winks Sales and Market Report and LIMRA 6/16/2014 7 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION IUL vs Traditional UL Index UL Traditional UL Flexible Premium YES Permanent Insurance YES Designed to cover Insureds lifetime YES Pays interest rate as determined by the company YES Net premiums are invested in and backed by the companys general account YES Include a flexible death benefit and a choice for the death benefit option YES Can include Rolling Target Premiums YES Provide for tax-deferred cash value accumulation YES Include the potential for cash value growth YES Incorporate guarantee features YES Include a guaranteed interest rate YES Allow for withdrawals and loans YES Upside earnings potential with index-linked interest crediting YESNO 8 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Interest Crediting 10 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Index Strategies An index strategy uses a formula that calculates interest based in part on the movement of a stock/bond market index, such as the S&P 500 Index. Index UL has different index strategies where clients can direct their money in an effort to take advantage of positive movements in a stock market index. 11 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Evolution of Index Life Annual Point-to-Point Daily Averaging Inverse Term End Point Monthly Averaging Monthly Point-to-Point Performance Triggered Term End Point Two Year Point-to-Point Five Year Point-to-Point Crediting Strategies 12 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Index Options Currently Available 10-Year Constant Maturity Treasury Note Barclays Bond Index Barclays US Dynamic Balance IndexDow Jones-UBS Commodity Index Euro Stoxx 50Hang Seng MSCI EAFEMSCI Emerging Markets NASDAQ-100Russell 2000 S&P 500S&P 500 Global (BMI) S&P MidCap 400S&P Total Return Index ML Strategic Balanced Index* Current as of 2/24/2015 *Not available in New York. 13 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Crediting Options Declared Interest Account Index Interest Account with Cap Rate Index Interest Account with Participation Rate Index Interest Account with Spread 14 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Which Option Is Used The Most? Historically, it was most common to use a participation rate to limit the potential index interest credited to IUL; this pricing lever is only utilized on 22.00% of all crediting methods offered on IUL today.* 76.00% of IUL crediting methods today use a cap to limit any index interest and the remaining 2.00% of crediting methods use a spread to limit any index interest credited.* *Source: Sheryl J. Moores NAIC Comment on IUL Illustrated Rates November 5, 2014 Article FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Actuarial Guideline 49 Maximum Illustrated Rate 16 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Rules for maximum illustrated rates AG 49 limits the maximum illustrated rate a carrier may show in an index universal life insurance illustration. This max rate will now be calculated based on a specific lookback approach that all insurers must use. The approach takes all 25-year lookback periods over the last 66 years. The new max rate will vary depending on each products cap rate, participation rate, floor, and index account design. effective 9/1/2015 17 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Rules for maximum illustrated rates The purpose of this change is to place more consistent limits around how insurers illustrate interest credited on IULs with the goal of more fairly depicting how these products may perform for the end consumer. effective 9/1/2015 18 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION IUL ProductIndex Account Type and RateFloor Current Max Illustrated Rate New Max Illustrated Rate 9/1 Value+ IUL S&P 50010% (1yr-Cap) 0.25%6.86% 6.06% ML Strategic Balanced Index (AGL only)115% (1yr-Par) 0.25%7.25% S&P 500 (USL only)55% (1yr-Par) 0.25%7.25% Elite Index II S&P 50010% (1yr-Cap) 0.25%6.90% 6.13% S&P 50070% (1yr-Par) 0.25%8.71% Elite Survivor Index II S&P 50010% (1yr-Cap) 0.25%6.90% 6.13% S&P 50070% (1yr-Par) 0.25%8.71% Elite Global Plus II (USL only) S&P 5009% (1yr-Cap)1.00%7.08%5.77% Elite Global Plus II S&P 5009% (1yr-Cap) 0.25%6.33% 5.77% S&P 500, Eurostoxx 50 and Hang Seng60% (5yr-Par) 0.00%7.63% Elite Global Survivor S&P 500, Eurostoxx 50 and Hang Seng45% (5yr-Par) 0.00%6.03% 5.98% S&P 500, Eurostoxx 50 and Hang Seng45% (1yr-Par) 0.00%5.04% AG Extend IUL S&P 5007% (1yr-Cap) 1.00%5.34% 5.75% S&P 50055% (1yr-Par) 2.00%7.71% New max illustrated rates below are calculated using AG 49 rules based off of current caps and participation rates as of 9/1/2015. How will this change affect American General Lifes IUL products? FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Actuarial Guideline 49 Policy Loans 20 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Index Account $80,000 Indexed Account $100, % -3%3% 6.00% Preferred Fixed Loan = 3% - 3% Choice Loan = Indexed Account Growth Rate 6.00% Opportunity for positive net loans Index Account $100, % Loan Account $20,000 Fixed Loan $20,000 Choice Loan $20,000 Understanding Participating Loans 21 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Policy Loans AG 49 will limit the interest rate differential that can be illustrated between the interest rate credited to loaned amounts and the corresponding loan rate that is charged to that balance (sometimes referred to as loan leverage or loan arbitrage). If the illustration includes a policy loan, the illustrated rate credited to the loan balance cannot exceed the illustrated loan charge by more than 1%. effective 22 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION How will this change affect American General Lifes IUL products? American General Lifes IUL products currently offer a fixed participating loan called a Choice Loan which charges a 6% loan rate. AG 49 will now limit the max illustrated rate that could possibly be credited to the loaned balance to 1% more than the 6%, which results in 7% in this example, or the stated policy maximum illustrated rate if it is lower. Illustrations also include a mandatory ledger at an alternate 6% illustrated rate. FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Actuarial Guideline 49 Illustration Disclosures 24 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION New illustration disclosures A ledger illustrated at the fixed account interest rate. If the illustration includes a loan, the illustrated rate credited to the loan balance cannot exceed the illustrated loan charge. In other words, no loan arbitrage can be shown. effective 25 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION New illustration disclosures A table showing the minimum and maximum of all the 25-year lookback rates that were derived under the new maximum illustrated rate calculation. A table showing actual historical performance over the most recent 20-year period for each index account illustrated along with the hypothetical interest rates that would have resulted based on the products cap, participation and floor rates. effective FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION In Review.Actuarial Guideline 49 NO CHANGE: American General Lifes products are not changing; this regulation will only impact how our Index Universal Life products are illustrated. NO CHANGE: Our competitive cap rates and participation rates are not affected by the requirements of AG 49. NO CHANGE: The potential amount of index interest that may be credited to a policyholders account is also not affected by AG 49. CHANGE: The way IUL products will be illustrated will be different. Note, these changes to IUL illustrations apply to the entire industry, not just to American General Life. FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Transition Rules We will only accept an illustration run above the new AG49 maximum illustrated rate if it was signed prior to September 1, 2015 with no changes after underwriting. If changes are required after September 1, 2015 and a new illustration is needed, the rate for the new illustration may not exceed the new AG49 maximum illustrated rate. Any policy issued September 1, 2015 and later must reflect the new AG49 maximum illustrated rate (or lower) on the delivered illustration. Policies must be in force and funded by October 31, 2015; otherwise a new signed illustration is needed that reflects the AG49 maximum illustrated rate. 28 FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Questions FOR FINANCIAL PROFESSIONAL USE ONLY-NOT FOR PUBLIC DISTRIBUTION Important Information Policies issued by: American General Life Insurance Company (AGL), 2727 A Allen Parkway, Houston, Texas The United States Life Insurance Company in the City of New York (US Life), One World Financial Center, 200 Liberty Street, New York, New York The underwriting risks, financial and contractual obligations and support functions associated with the products issued by AGL or US Life are the issuing insurers responsibility. US Life is authorized to conduct insurance business in New York. Guarantees are subject to the claims paying ability of the issuing insurer. Policies and riders not available in all states. AGL and US Life are member companies of American International Group Inc., (AIG). AIG does not underwrite any policy described herein. Policies and riders not available in all states. These product specifications are not intended to be all-inclusive of product information. State variations may apply. Please refer to the policy for complete details. Important: Prior to soliciting business, be certain you are appropriately licensed and appointed with the insurer and that the product has been approved for sale by the insurer in that state. If uncertain, contact your AIG Life Insurer or American General Life Insurance Company representative for assistance. AGLC American International Group, Inc. (AIG). All rights reserved. American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries.. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange. Additional information about AIG can be found at| YouTube:| | LinkedIn:AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website atAll products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds.