Timothy C. Pfeifer, FSA, MAAAPfeifer Advisory LLCApril 13, 2010

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Generating Assets

Stable Sales in All Environments

Generating Income

Hedging Effects for Other Product Lines

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Suppose you are handed a blank sheet of paper and are authorized to build the line in today’s environment:

Systems capabilities are available.Creative products are not out of the question.

“Develop an annuity portfolio which will enable our company to become a strong, sustaining player in the individual annuity marketplace, while achieving reasonable profitability.”

Assumptions

A. Bond Yields quite steep

B. Commercial Mortgages yielding 5.19%

C. Equities grew 40% in last year, but caution persists

D. Portfolios cash heavy, capacity existsE. Uncertainty about Indexed Annuities’ securities

treatment

F. Conservative investors and producers

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A Rated: 2 yr – 1.89% 10 yr – 5.05%

BBB Rated: 2 yr – 2.39% 10 yr – 5.49%

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Deferred Annuities

Immediate Annuities

Fixed/DeclaredVariable with GMAB, GLWB

Indexed with Annual PTP

ModularMYGA

Interest-Indexed One

Year RG

Indexed, w/S&P, Annual Adj.

CPI, or Interest-

Indexed Kicker

Investment wraps, or Stand-Alone Living Benefits, a contingent annuity providing a guarantee on hedgeable assets such as indexed mutual funds or passively managed ETFs.

Why? Although not a traditional annuity, such products open doors to large pools of invested assets and associated distribution and asset manager relationships.

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A. Variable Immediate Annuities

B. Longevity Insurance (maybe in another

environment)

C. LTC Rider (possibly on VA, not fixed)

D. Complicated indexed return structures

E. Straight one-year rate guarantee product

F. GMIB on VA

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Fixed/Declared Modular MYGA

Simple MVA Formula (non-security)

Levelized sales compensation

No ROP

5, 7, and 10-year IGPs, with autorenewal guarantee

$25,000 minimum (NQ), no policy fee

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Interest Indexed One-Year Rate Guarantee

Simple MVA Formula (non-security)

Levelized sales compensation,

if possible

Link credited rate to 5 or 10 yearTreasuries, or to CD rates

Higher minimum ($50,000), with no policy fee

Minimum credited rate equal to initial

credited rate for SC period

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Variable Deferred w/GMAB, GLWB

Heavily indexed-oriented subaccounts

with a small number of third partymanagers and 20-30 funds total

Minimal base GMDB10 year GMAB and GLWB with rising %, step-ups and controls on ph activation

Graded M&E scale,

emulates A sharedesign

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Indexed, w/Annual PTP

Registered and Non-Registeredversion, varying by guarantee and participation

Introduce new index choices beyond S&P 500, including non-equity

Option to give up mid-level return for sharing in “home-

runs”

SCs not larger than 10 years, and

minimum sizes of $25,000

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Indexed SPIA, with S&P Adjustment

Outstanding use of indexing,benefit can go up, not down

Liquidity (partial) at defined

internals, w/MVA

Can couple with fixed benefit SPIA bucket

% benefit trail

compensation

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CPI or Interest-Indexed SPIA

As with Indexed SPIA above,benefit can climb, but not fall

Must be priced for greatermortality anti-selection

Limited liquidity at defined intervals, w/MVA

Initial benefit disadvantagemay be greater in currentinterest rate environment for younger annuitants

1. Variable Deferred Annuity

2. Modular MYGA

3. CPI SPIA

4. Indexed Deferred

5. Indexed Immediate

6. One-Year Rate Guarantee Deferred with Interest

Index

7. Stand-Alone Living Benefit

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