Society of Actuaries Society of Actuaries annual meetingannual meeting

111 Panel Discussion 111 Panel Discussion Indexed Product Deep Dive (Life and Annuity)Indexed Product Deep Dive (Life and Annuity)

Timothy C. Pfeifer, FSA, MAAATimothy C. Pfeifer, FSA, MAAA

Pfeifer Advisory LLCPfeifer Advisory LLC October 13, 2015October 13, 2015

Fixed Indexed Annuity Sales Have Fixed Indexed Annuity Sales Have Performed Impressively, Despite a Performed Impressively, Despite a

Difficult EnvironmentDifficult Environment

Average size of FIA sale popped in mid-2013, now nearly $90,000Average size of FIA sale popped in mid-2013, now nearly $90,000

10-year SC 10-year SC and 7-year and 7-year

SC SC Domination– Domination– two thirds of two thirds of

sales pay sales pay bonusesbonuses

S&P 500 S&P 500 Accounts for Accounts for 55% of sales, 55% of sales,

Hybrid Hybrid Indexes Indexes

account for account for 28%28%

Banks and Banks and Broker/DealeBroker/Dealers sold 25% rs sold 25%

of FIAs, of FIAs, Independent Independent Agents 70%Agents 70%

Q2 YTD Q2 YTD Sales $23.6 Sales $23.6 billion, up billion, up about 1% about 1% over 2014over 2014

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FIA Sales Show Substantial Dispersion FIA Sales Show Substantial Dispersion in Terms of Meaningful Carriers, but in Terms of Meaningful Carriers, but

Overall Production is Dominated by 6–8 Overall Production is Dominated by 6–8 Life InsurersLife Insurers

Top Six PlayersTop Six Players

At least 27 carriers are on track At least 27 carriers are on track to sell $250 million or more of to sell $250 million or more of

FIA in 2015FIA in 2015

At least 36 carriers are on track At least 36 carriers are on track to sell $50 million or more of to sell $50 million or more of

FIA in 2015FIA in 20151. Allianz Life

2. American Equity

3. Great American

4. Athene USA

5. Security Benefit Life

6. American General Life

Notable by their absenceLarge Mutual Life InsurersMost of the largest Variable Annuity Insurers

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Majority of major players offer one or more investment firm-created or index sponsor-created VC indexes with a spread (uncapped)

Carriers targeting niches and sophisticated treatment of Benefit Bases

More 7-8 year products under development, usually without Premium Bonuses, but generous crediting bonuses on 10+ year Surrender Charge products

Product Design is Unrelenting on Product Design is Unrelenting on FIAs, but Several Major Themes FIAs, but Several Major Themes

Continue to DominateContinue to Dominate

Bonus and Bonus and Surrender ChargesSurrender Charges

Guaranteed Lifetime Guaranteed Lifetime Withdrawal BenefitsWithdrawal Benefits

Volatility Controlled Volatility Controlled IndexesIndexesA

B

C

Much higher caps, par rates on Benefit BaseMuch higher caps, par rates on Benefit BaseDe-emphasize AccumulationDe-emphasize AccumulationGender DistinctionsGender Distinctions

Participating IncomeParticipating IncomeSimple Interest Roll-Simple Interest Roll-upsups

Stacked Benefit BasesStacked Benefit Bases

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Challenges for the Indexed Annuity Challenges for the Indexed Annuity Space Going ForwardSpace Going Forward

EnvironmentalEnvironmental

Low Interest RatesLow Interest Rates

Negative PressNegative Press

Unknown Policyholder BehaviorUnknown Policyholder Behavior

Fierce CompetitionFierce Competition

RegulatoryRegulatory

DOL Fiduciary OutcomeDOL Fiduciary Outcome

New Reserve Table Impact on GLWBsNew Reserve Table Impact on GLWBs

Nonforfeiture Compliance with GLWB ChargesNonforfeiture Compliance with GLWB Charges

Illustration PracticesIllustration Practices

Despite all of these, I remain very bullish on Despite all of these, I remain very bullish on Indexed AnnuitiesIndexed Annuities

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Indexed Life Sales Have Been Indexed Life Sales Have Been Outstanding over the Past Five Outstanding over the Past Five

Years, and Momentum ContinuesYears, and Momentum Continues

Average size Death Benefit for IUL is now $479,000, slightly risingAverage size Death Benefit for IUL is now $479,000, slightly rising

10-year SC 10-year SC and 15-year and 15-year SC periods SC periods dominate – dominate –

nothing nothing beyond 15 beyond 15

yearsyears

S&P 500 S&P 500 Accounts for Accounts for 60% of sales, 60% of sales,

Hybrid Hybrid Indexes only Indexes only

3.5% 3.5% (Rainbows 25%)(Rainbows 25%)

Independent Independent Agents Agents

accounted for accounted for 73% of sales, 73% of sales,

Career Career Agents 16%Agents 16%

Q2 YTD Q2 YTD Sales $838 Sales $838 million, up million, up about 20% about 20% over 2014over 2014

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* Dump-ins not reflected.* Dump-ins not reflected.A very different Sales Ranking would result A very different Sales Ranking would result

if Dump-ins were included.if Dump-ins were included.

Indexed UL Sales Show a Considerably Indexed UL Sales Show a Considerably Broader Dispersion of Sales by Carrier, Broader Dispersion of Sales by Carrier,

and a Regular and a Regular Re-positioning of Industry LeadersRe-positioning of Industry Leaders

Top Six PlayersTop Six Players

At least 8 carriers are on track At least 8 carriers are on track to sell $75 million* or more of to sell $75 million* or more of

IUL premium in 2015IUL premium in 2015

At least 12 carriers are on track At least 12 carriers are on track to sell $50 million* or more of to sell $50 million* or more of

IUL premium in 2015IUL premium in 20151. Transamerica

2. Pacific Life

3. National Life/LSW

4. Minnesota Life

5. Nationwide

6. AXA US

Notable by their absenceLarge Mutual Life InsurersNotable by their presenceMost of the Variable UL Insurers

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In Volatility Controlled Indices, Lifetime Income Riders.

On Death Benefit Guarantees

The Recent Product Design Trends in The Recent Product Design Trends in the IUL Space Have Been Largely the IUL Space Have Been Largely

Related to the Related to the New Illustration GuidelineNew Illustration Guideline

Persistency Bonuses – Credited Rate enhancements, refund of charges

Accounts with Non-zero Guarantees – Creates need for Hypothetical Benchmark

Other Account Variations – Multi-year Crediting, Non-APTP structure, Cumulative Return Guarantees

Interest In: Interest In:

Stable FocusStable Focus

Still Relatively Still Relatively Little ActivityLittle Activity

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Challenges for the Indexed Challenges for the Indexed Universal Life Space Going ForwardUniversal Life Space Going Forward

EnvironmentalEnvironmental

Low Interest RatesLow Interest Rates

Weak Policy Performance Relative to Weak Policy Performance Relative to IllustrationsIllustrations

Unknown Policyholder BehaviorUnknown Policyholder Behavior

Fierce CompetitionFierce Competition

NAIC Illustration Rules, and Associated NAIC Illustration Rules, and Associated AmbiguityAmbiguity

Rise in LitigationRise in Litigation

Impact of PBRImpact of PBR

Tax Questions Surrounding Linked-Benefits, Tax Questions Surrounding Linked-Benefits, Lifetime IncomeLifetime Income

Once again, despite these challenges, the Once again, despite these challenges, the IULIUL outlook is strong. outlook is strong.

Legal/RegulatoryLegal/Regulatory

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Thank YouThank You

Timothy C. Pfeifer, FSA, MAAATimothy C. Pfeifer, FSA, MAAAPfeifer Advisory LLCPfeifer Advisory LLC

www.pfeiferadvisory.comwww.pfeiferadvisory.com