Butch Britton

Presenting Sponsor: Produced By:


It’s All About Life

Donald (Butch) Britton, CEO, ING U.S. Insurance

CN1114-5988-0113

CN1114-5988-0113


DISCLOSURE

Life insurance products are issued by ReliaStar Life Insurance Company (Minneapolis, MN), ReliaStar Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company (Denver, CO). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted, and its products issued. All are members of the ING family of companies. All guarantees are based on the financial strength and claims paying ability of the issuing insurance company, who is solely responsible for all obligations under its policies. Other than the ING companies identified, no other entities, whether distributing or listed on the material, are affiliated with the ING family of companies.

2


Key Topics

State of the Industry Economic Impact of Insurance

Key Industry Trends

Industry Headwinds

What’s Happening in Products

Future of Distribution

Save the Goose that Lays the Golden Egg

3


Life Insurance Industry Key in U.S. Economy

Just how big and important is it

Where would we be without Life industry

Weathering a storm

How is fiscal policy affecting us

Is history repeating itself

Strong, important industry with big challenges

4


Life insurance

beneficiaries received

approximately $60 billion

in 2011.

Source: The Heart of the Matter, LIMRA 2012

5


Life insurers infused $59 billion

into the U.S. economy in

2009 through death benefits

paid to beneficiaries.


6


At the end of 2009, life insurers

held $325 billion in

commercial and residential properties.


7


Life insurers have $4.5 trillion

invested in the U.S. economy,

making them one of the largest sources

of capital in the nation.


8


The life insurance industry has

$1.3 trillion

in investable assets.


9


The life insurance industry pays

$14.7 billion

in premium taxes annually.


10


The life insurance industry is the

NUMBER ONE

U.S. investor in corporate bonds.


11


Social Security pays out about

$1.9 billion every day.

The life insurance industry

pays out $1.5 billion every day.


12


The life insurance industry employs

5.7 million people.


13


Life Insurance Industry: Emerging from a Dark Decade

What happened – the five fatal factors

Where are we now

Don’t want a replay

14


The Credit Crisis

Image from: http://www.dallasloanofficer.com/files/tag-sub-prime002c-alt-a002c-credit-crunch.html

Fatal Factor #1: Subprime

15


16

Timeline: Crisis Unfolding

Key Events 2002-2006

Interest rates held at all time lows, housing prices soar Banks fundamentally shift mortgage activities to an “originate and distribute” model (Source: OECD)

02/07 Freddie Mac announces will no longer buy subprime mortgages

07/07 Countrywide Financial warns of “difficult conditions”

11/07 Interbank lending rates start trend upward

12/07 Federal Reserve creates Term Auction Facility (TAF) to inject $24B of liquidity into the financial system

01/08 Bank of America buys Countrywide Financial for $4B in all stock deal

03/08 Fed provides financing deal for JPM to “purchase” Bear Stearns

Source: Timeline.org, Organization for Economic Cooperation & Development (OECD)

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17

Timeline: Crisis in Full Swing

Key Events 09/08

Bank of America announces purchase of troubled broker Merrill Lynch for $50B

Freddie and Fannie placed under government control

Lehman Brothers files CH 11 Bankruptcy

JPM purchases troubled bank Washington Mutual

Government drastically expands various programs aimed at injecting capital into the financial system

Wells Fargo announces intention to purchase troubled bank Wachovia

US Government lends AIG $85B

10/08 FDIC Insurance limits raised to $250k

11/08 Three large Insurance companies seek TARP money (Lincoln, Genworth and Hartford). [Genworth

did not qualify / receive TARP money]

12/08 Automakers receive government aid

Source: Timeline.org

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18

A Remarkable Statistic

1/1/1970 to 04/30/2009

DJIA – 10,000 trading days – nearly 40 years

39 days with a 4%+ rise

34 days with a 4%+ fall

0.7% of the time

Sept. 2008 to April 2009

17 days with 4%+ rise

20 days with 4%+ fall

(Source: Morgan Stanley research)

HALF of the big swings over 40 years have occurred from Sept. 2008 to April 2009

Fatal Factor #2: Market Volatility

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19

The Federal Funds Rate

Fatal Factor #3: Rate increase

• Fed Funds – interest rate banks borrow from each other remains close to 0%. Rate is determined by the Federal Reserve.

• Rates expected to be kept low for extended period.

19

(Perc

en

t)

Shaded areas indicate U.S. recessions.

2010 research.stlouisfed.org


20

Accounting Issues

The crisis highlighted issues around securities valuations in stressed market liquidity

Mark to Market (FAS 115)

Accounting policy implies markets are operating in a way that will price securities correctly (efficient market theory)

Example: Alt-A Mortgages

Valuation A: Valued at 90 cents on the dollar based on coupon payments

Valuation B: Trading at 60 cents on the dollar in the open market

Which valuation would be more meaningful to a long term investor planning on holding the Alt-A Mortgages to maturity

The question of how accounting policy can be adapted to different types of financial institutions and ensure transparency remains an important policy issue

Fatal Factor #4: Mark to Market

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21

Ratings Agencies

Recent book “The Big Short” by Michael Lewis has portrayed rating agencies in a negative light

Banks learned how to game the ratings agencies’ models

Ratings models wrongly assumed house prices would always rise

Mortgage securities with a high risk of default were bundled with other high risk securities and wrongly given AAA ratings based on “geographical diversification”

Ratings agencies gave many mortgage-backed securities AAA ratings that failed and are now being accused of “shooting the wounded” with credit downgrades of companies that invested in these securities

Lower rating impact on cost of capital

Fatal Factor #5: Rating Agencies

21


How Have Rating Agencies Responded?

22

Downgrades

U.S. Life / Annuity Rating A.M. Best Downgrades

Source: A.M. Best Research, 2009 Special Report, A.M. Best Monthly Ratings Reports (Jan. – Dec. ‘09)


Headwinds for the Future

Ratings and consumer confidence

Low interest rates problem

Regulation and disclosure

Loss of tax advantages

High capital use products

Not out of the woods yet

23


Ratings Hurting Consumer Confidence

Look back 20 years at performance vs. ratings

Does not tell the story

Comdex in a vacuum not worth it

Average rating of big US bank

Are we using ratings against ourselves?

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25

Financial Strength Ratings Comdex vs. Credit Ratings

Company A Company B

A.M. Best A+ Negative A+ Negative

Standard & Poor’s AA- Stable A+ Negative

Fitch A+ Negative Not Rated

Moody’s A2 Stable Not Rated

Company Information Admitted Assets: $237Bn

Net Earnings from Ops: $497M

Admitted Assets: $1.3Bn

Net Earnings from Ops: $173k

COMDEX 89 93

A.M. Best Company assigns ratings from A++ to F based on a company's financial strength and ability to meet obligations to contract holders. A+ is the 2nd highest of 15 ratings. Fitch assigns ratings from AAA to C based on a company's financial strength. A+ is the fifth highest of 19 ratings. Moody's Investor Service (Moody's) assigns ratings from Aaa to C based on a company's financial security. A2 is the sixth highest of 21 ratings. Standard & Poor's assigns ratings from AAA to CC based on a company's financial security. AA- is the 4th highest and A+ is the 5th highest of 20 ratings. The ratings relate to an insurance company's ability to meet its claims and guarantees. The Comdex is a composite index based on the ratings received by a company from the ratings services. It is the average percentile ranking for all of the ratings received by a company. As such, it is not another rating, but rather an objective scale that can be used to easily compare the ratings of different companies. The ratings are as of 09/16/2010 and are subject to change. Source of ratings and financial data: VitalSigns Carrier Analysis Report Financial data as of 2008 Year End

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26

What About the Major Banks?

Senior Unsecured Debt Baa2 A-

Subordinated Debt Baa3 BBB+

Outlook NEG NEG

Senior Unsecured Debt A2 A

Subordinated Dept A3 A-

Outlook NEG NEG



Outlook NEG NEG

Senior Unsecured Debt A2 A+

Subordinated Debt A3 A

Outlook NEG NEG

Senior Unsecured Debt A3 A-


Outlook NEG NEG



Outlook NEG NEG

Bank 1

Bank 2

Bank 3

Bank 4

Bank 5

Bank 6

Moody’s S&P

Moody's Investor Service (Moody's) assigns ratings from Aaa to C based on a company's financial security. Standard & Poor's assigns ratings from AAA to CC based on a company's financial security. The ratings are as of 09/2012 and are subject to change.

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S&P Historical Ratings

The ratings relate to an insurance company's ability to meet its claims and guarantees. The ratings are as of 11/2012 and are subject to change.

27

ING US Life Insurance Company Ratings and Competitor Benchmark

Financial Strength Ratings

Rating Outlook

Financial

Strength

Rating Action/

Credit Opinion

Rating

Outlook

Financial

Strength

Rating Action/

Credit Opinion

Stable A+ 02/28/2011 New Rating AA+ 03/06/1990

Stable A+ 02/28/2011 Watch, Neg AA+ 03/30/2005

Negative AA- 1/27/2012 DG, Neg A 12/11/1990

Stable B+ 08/03/2012 UG, Stable A+ 11/06/1997

Executive Life DG BBB 03/28/1990 Stable A 01/23/1990

Stable A- 3/21/2012 Stable AAA 07/02/1985

Stable A- 03/07/2012 Stable AA 04/17/1991

Stable A- 03/07/2012 New Rating A+ 09/26/1990

Stable A- 03/07/2012 Stable AAA 02/12/1987

Stable AA- 12/13/2010 New Rating AAA 07/03/1991

Stable AAA 02/21/1986

Stable AA- 6/15/2009 New Rating AA- 10/03/1991

Stable AA- 5/1/2012 New Rating AA+ 07/15/1994

Mutual Benefit R 08/24/1992 Stable AA+ 05/10/1990

Stable AA- 8/19/2011 New Rating AAA 06/25/1997

Stable A+ 7/8/2011 Stable AAA 12/14/1988

Stable A+ 6/20/2012 New Rating AA+ 10/03/1991

Negative A+ 10/9/2012 New Rating AA+ 09/24/1991

Stable AA- 2/26/2009 Stable AAA 01/03/1985

Stable BBB+ 2/24/2012 New Rating AAA 01/16/1990

DG BBBpi 12/22/1999 UG Aaq 06/25/1996

Standard & Poors 2012 Standard & Poors 1990


2008 – 2011 Timeline

28

Consumer Confidence in Insurance Companies

Consumer Favorable View of the Economy

New Annualized Premiums ($ Billions)

4%

4%

2%

3%

10% 8%

7%

11%

9%

8%

14%

9%

8%

5%

77%

62%

72%

69%

71%

69% 69% 70%

72% 72%

74%

A global financial crisis is

triggered by the bursting U.S.

housing bubble.

• Lehman Brothers files for

bankruptcy

• AIG receives an $8.5 billion

federal bailout

• Bear Stearns collapses and

is sold to JP Morgan Chase

• Individual life insurance sales

(based on annualized new

premiums) fall 7% to $10.9

billion.

March 9, 2009: the S&P 500 closes

at 676.53, a 57% drop from the Oct.

9, 2007 high of 1,565.15.

The recession officially ends in June

according to the National Bureau of

Economic Research.

The unemployment rate plateaus at

10% in October.

Individual life insurance sales decline

16% to $9.2 billion, the worst annual

percentage decrease since 1942.

The Dodd-Frank Wall Street Reform

and Consumer Protection Act is

signed into law. The legislation

requires about 400 rulemakings and

nearly 100 studies.

The Moment of Truth: Report of the

National Commission on Fiscal

Responsibility and Reform (the

Bowles-Simpson report) is released.

The report states that, “everything

must be on the table,” and

recommends an end to many tax

expenditures, including the current tax

treatment of individual life Insurance.

Individual life insurance sales rise 4%

to $9.5 billion.

The U.S. federal debt ceiling is raised

and within days Standard & Poor’s

downgrades the credit rating of U.S.

debt. The U.S. federal debt stands at

about $1.5 trillion by year-end.

The Federal Reserve announces

it will keep interest rates at

historic lows through mid-2013.

Individual life insurance sales gain

4%, totaling $9.9 billion.

Source: 2012 LL Global


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The Federal Funds Rate and 10 Year Treasury Rate

Who is thinking about Insurance Industry with 4% cash value?

• Fed Funds – interest rate banks borrow from each other remains close to 0%. Rate is determined by the Federal Reserve.

• Fed expected to keep rates low for extended period.

29

(Perc

en

t)

Shaded areas indicate U.S. recessions.

2010 research.stlouisfed.org


Potential Headwinds – Low Interest Rates

Key Findings

45% of respondents see a prolonged low interest rate environment as the greatest threat to their business.

87% believe there is a 50% greater likelihood of a major disruption to the economy in the next 12 to 18 months.

97% consider interest rate risk a significant exposure for their company.

When considering interest rate exposure, respondents cited the level of statutory capital and statutory earnings as the primary metrics for concern.

57% of respondents have established risk tolerance limits for interest rate risk. Some of these companies have had serious challenges trying to keep within their established limits.

43% of respondents say the language in their policy forms allows them to change COI rates based on investment earnings.

Most CFOs are considering implementing multiple new strategies as a result of the low interest rate environment, including dramatic changes such as ceasing or exiting a product line.

Source: Towers Watson’s Life Insurance CFO Survey #30 (web-based survey conducted March & April 2012)

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What’s Happening to Products

Low interest rate environment

Potential impact on crediting rates

Pulling of long term guaranteed term product

Are GDBUL next to go?

Is Indexed our future?

Low interest rates drive up prices in big way

31


Potential Headwinds, Regulators and

Disclosure

Actuarial Guidance 38 and long term guarantees

Commission disclosure

Other challenges

Loss of tax advantages

32


Moving on to Current Trends

Are we fulfilling our social mission

Is the market mature

Is there still an opportunity in affluent market

Can we solve the middle market puzzle

Are we a pass or fail?

33


Key Findings – Sales Trends

U.S. Individual Life Sales Trends

Industry sales flat for two decades. Down 29% on constant dollars. First Quarter 2006 up 15% driven by UL and NRPF.

2011 +4%

Source: LIMRA’s U.S. Individual Life Insurance Sales Survey and LIMRA estimates

0

2

4

6

8

10

12

14

16

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2007 2008 2009 2010 2011

Premiums $bbl Constant (1985) $

-29%

9.7

6.0

13.5

11.6

12.5 12.0

34


0

2

4

6

8

10

12

14

16

18

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Policies $mm


Policies Sold

Bad direction for policies sold. Selling bigger policies.

Source: LIMRA’s Individual Life Sales Survey and LIMRA estimates (U.S. Individual Life Insurance Sales Trends, 1975 – 2011)

-41%

17.1

12.3

10.0 9.5 Policies 2011 +2%

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Opportunity – Needs Up

42%39%

44%

50%

23%

32%

27%25%

19921998

20042010

19921998

20042010

Trends in Need for Life Insurance and Future Purchase Intentions

Needs more life insurance Likely to buy in next 12 months*

*Includes “Very” and “Fairly” likely to buy in the next 12 months

Source: LIMRA’s Individual Life Sales Survey and LIMRA estimates

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Policies Sold vs. Households with Children

Industry failing in a growing market. Opportunity is huge.

Source: LIMRA’s Individual Life Sales Survey and LIMRA Estimates (2010)

0

2

4

6

8

10

12

14

16

18

0

10

20

30

40

50

60

70

80Policies Households w/children74.3 mn HH

62.7 mn HH

+19%

1980s 1990s 2000s

37

10 mn Policies


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1Source: 2008 CEO Life Insurance Task Force for the Future 2Source: LIMRA’s Individual Life Sales Survey and LIMRA Estimates (2010)

Trends in U.S. Life Insurance Ownership

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“We’re Failing”1

38

83% 83%81%

78%76%

78%

70%

46%

72%

65%

34%

54% 53%52%

52%

49%

55%

50%

50%

44%

62%

56%

47%

42% 41%

30%

40%

50%

60%

70%

80%

90%

1960 1976 1984 1992 1998 2004 2010

Total Group Individual Face-to-Face


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Opportunity - Answers

43%

40%

29%

20%

74%

52%

50%

Can’t afford life insurance

Difficult to decide how much I need

Have not gotten around to it

Worry about making the wrong decision

Prefer to put money in other financial products

No one has approached me

Unpleasant to think about dying

Source: LIMRA 2004 Ownership Study

Why Households Needing More Insurance Haven’t Bought

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40

25000

75000

125000

175000

225000

275000

19

75

19

83

19

89

19

93

19

98

20

02

20

04

20

06

20

08

20

10

Opportunity – Fewer Agents

Number of Agents and Recruits

100,000

80,000

60,000

40,000

20,000

0

Source: LIMRA’s Census of U.S. Sales Personnel

Total Agents

Recruits (Right Axis)

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Future of Distribution

LIMRA numbers show the problem

New generation of talent in the industry

Growth in intermediaries

Is career on the comeback?

Alternative distribution for middle class has its opportunity and problems

The quote shop

Technology as a distribution tool, like ING for Life

Mentoring new people

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Sales Capacity Remains an Issue Across most channels, the majority of experienced1 advisors are

over 50 and have significant industry experience

Advisors age 50 and older

Percent by channel

Advisors with 25+ years industry experience

Percent by channel

42

1 Advisors in survey have at least 3+ years of experience in industry

Source: LIMRA-McKinsey Financial Advisor Survey 2012


Shrinking Pool of Agents

Median Age of Producers by Distribution System

Distribution force is aging. Going independent and up market. *Source: LIMRA’s Survey of Producer Opinion

Source: Financial Advisor Survey

1978 1996 1999 2004

All 38 47 50

Affiliated 48

Career 47 50

MLEA 46 48

Independent 56

Broker 48 50

PPGA 50 53

Securities Rep 39

Bank Rep 31

IFP 43

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Sales Capacity Remains an Issue About 20% to 40% of advisors are within 10 years of retiring or selling their

practices, but more than half have no succession plans

44

1 to 3 years

4 to 6 years

7 to 10 years

Years to retirement/sale of practice by channel

Percent channel total

28

21 18

Percent with

succession plans

39

23

32

22

41% 65%

*Insufficient data

**Based on a small sample

SOURCE: LIMRA-Mckinsey Financial Advisor Survey 2012


Company Success Focus on Multiple Channels

Growth may come from channel diversification.

45

Individual Life Market by Channel

Annualized New Premium

Source: 2010 LIMRA Life Facts


Technology Future in Distribution

Bought vs. sold

Internet sales

Internet and technology as a tool

Social media

Who will crack the safe?

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47


48


Can’t let all the events blind us

This says it all

“No! – I can’t be bothered to see a salesman – we’ve got a battle to fight!”

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The Insurance Purchase Process

The Role of the Internet in the United States

In the United States, 245 million people (78 percent of the population)

are online.1

Transact online: 61% bank online and 71% purchase products there.

Both figures increase as household incomes and educational

attainment rise.2

61% of U.S. consumers who recently sought information on individual

products made the Internet one of their information sources, up 38%

from 2006.3

1 Internet Usage and Population Statistics for North America, Internet World Statistics, December 31, 2011. 2 Zickuhr, Kathryn, and Aaron Smith, Digital Differences, Pew Internet & American Life Project, April 13, 2012. 3 Need Identification and Information Seeking; The Role of the Internet in the United States, LIMRA, 2012.

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The Insurance Purchase Process

The Role of the Internet in the United States (cont’d.)

Online consumers continue to purchase offline, most often in person through insurance

professionals or at work.

Only about 1 in 10 recent buyers purchased insurance or annuities online, fewer than

in 2009.

Only 59% of online life buyers were able to complete the purchase process without

contacting someone.

Consumer who buy online most often look for convenience (61%).

Offline buyers most often want to meet with someone in person, meet with a personal

agent, or be able to ask questions.

Self-directed consumers want to buy online. Men, Gen Yers, and middle-income

consumers were more likely to purchase online.

Source: 2012, LL Global, Inc.

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Recent Purchase Behavior

Source: The Insurance Purchase Process: The Role of the Internet in the United States, 2012, LL Global, Inc.

Roughly 9 in 10 recent individual insurance or annuity purchasers completed the process offline, most often in person or at work. Online purchasing has not increased.

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How Did They Buy Individual Insurance and Annuities? Percent of consumers who purchase from any source, by product purchased


Technology and Innovation to Reach the Middle Market

Determine if Agency or Lead Generator?

Phone # for consumers to

call

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Life Insurance Still a Big Advisor Base Sale

Shop online, buy online

The professional agent

Buyers want education

Where are professionals focused?

54


Life Insurance Ownership in High Net Worth

Market has an Impact on the Middle Market

Is declining ownership of life insurance in middle market driven by agent

pursuing wealthier households?

Is the high net worth market saturated?

Who will serve the middle market?

Will alternative channels fill the void?

Disappearing life companies

1985 – 2,261

2003 – 1, 123

We fail as an industry if we don’t serve both

Multiple distribution channels and broad product offerings are key to solutions for industry.

Source: Count from AM Best

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9.6

10.9

13.213.7

13.3

9.69.1

10.5

13.1

14

4.95.3

6.77.1

6.3 6 6.2 6.2

7.58.3

2.7 2.52.9

3.33.7 3.7

3.33.8

4.95.4

0.25 0.23 0.41 0.59 0.53 0.48 0.48 0.54 0.74 0.93

0

2

4

6

8

10

12

14

16

$500k+* $1mn+* $1mn+ Investable Assets $5mn+*

The Affluent Household

All time high at 14 million NIPR – Not including Primary Residence

Source: Spectrem Group

Number of Affluent Households Total Households (millions)

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The Belief that High Net Worth Market is Saturated is a Myth

More than half of high net worth households do not own permanent or term

Less than 10% own second to die

While future purchase intentions seem low, each percentage point translates into some

89,000 high net worth

Debate around estate taxes causes hesitancy to purchase

12% admit they do not have enough

Probably an underestimate given 26% of high net worth have less than $100,000 of life

insurance.

There is a big market, but current sales practices could hurt

the traditional sale.

Individual Life Insurance and Ownership

and Future Purchase Intentions

Ownership Future Purchase

Intentions

Cash Value 44% 4%

Term 41% 5% Second-To-Die 7% 2%

Source: 2006 Phoenix Wealth Survey and July National Underwriting article by Walter Zultowski

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The Life Insurance Company Dilemma

in the Middle Market

Need to be competitive, price sells

Mortality results drive price and profit

Underwriting and risk selection strict

Compensation supporting distribution vs. price

Economics of the sale vs. market opportunity

You can tie underwriting and loss to price

They want to buy. We need to be competitive. Can

you afford to sell it?

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The Competitive Landscape in the Middle Market

Spread sheet selling

Price

Underwriting guidelines

Risk of an outlier

For $500,000 of Term Life Insurance at most ages the

difference in #1 and #5 may be $10

Easy does not sell like price

Easy is important to company/distributor economics

Price is king, easy is necessary, process is expensive.

59


Underwriting and Mortality

Very strict underwriting to get mortality results

Just think in super-preferred class on average in the

industry. You are looking at around:

Under 2 deaths per 10,000 insured at 35 year 1



Population mortality is substandard. This is the

challenge to Simple and Instant Issue Product.

Source: Rounded ING pricing mortality

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The Economics of the Sales ING TermSmart 10 Year Level Term – Super Preferred 80% Base Commission $68 Policy Fee

Delivery is economics of the sale.

Male

Age

Face

Amount

Premium

Commission

on the Fee

Commission

not on Fee

35 100,000 102 81.60 27.20

300,000 143 114.40 60.00

500,000 193 154.40 100.00

55 100,000 279 223.20 168.80

300,000 560 448.00 393.60

500,000 873 698.40 644.00

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Cost of Distribution

Nobel assertion is “distribution cost too high”

Average agent under $50,000 income

Alternative channels have not found way to reduce distribution

cost. Direct mass prospecting is middle market key.

Agent’s Role

Prospect

Sell

Case manage

Place policy

Service

Direct Role

Prospect

Sell

Case manage

Place policy

Service

62


Future of the Middle Market

Alternative channels will play a bigger role

Mass marketing to call centers selling term

Ordinary agent economic dilemma

Company scale to deliver

Five years from now new models will find a way to capture share in the

segment

Banks may be a bigger player

Distribution economics a challenge in middle market

New industry models needed or a back to basics is

needed to fill the need in this large market segment.

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Protecting the

Goose that Lays

the Golden Egg

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The Goose’s Golden Egg

Protecting your home, your car – why not your family?

Income tax-free death benefits – Proceeds from an insurance policy are generally income tax free and if properly structured, may also be free from estate tax.

Potential for income tax-deferred growth – No income taxes are generally due on cash values that accumulate in the life insurance policy.

Potential source of retirement income - Income tax free distributions are achieved by withdrawing to the cost basis (premiums paid) then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value and reduce the death benefit or cause the policy to lapse. This assumes the policy qualifies as life insurance and is not a modified endowment contract.

Lifetime return on death benefit

65


Enter the Life Settlement

Market is growing but still small when compared

to more than 9 trillion of life insurance in force. (1) Source: Sanford Bernstein Co. (2) Source: Scope Group, Berlin

Deal Volume

Year

Total Policy

Face Value

2003 6 Billion

2005 (1) 13 Billion

2010 (2) 15 Billion

2030 (1) 160 Billion

66


Life Settlements

Do Life Settlements have a role?

Model regulations coming along – State regulation is increasing

States passing provision to protect consumer’s right to know

Industry Impact

Old age prices – not significant yet

Price into new products

Raise rates on older ages

Impact of abuses

First right of purchase policy language

Establish a new role in underwriting. The risk is

longevity. They live too long.

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The Perfect Storm

Adverse Conditions Life Settlement

Premium Finance

Non Recourse Premium Finance

Investor Owned Life Insurance (IOLI)

Wet Paper Transactions/Free Insurance

Future impact on the industry

Nothing in this world is free

The table shave program

Death of the underwriting exception

Two tables turn a 5% asset into 12% asset

Does anybody buy real life insurance anymore?

Need back to basics.

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Term-to-Perm, To Settlement

Destroying the term conversion

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My greatest learning experiences were from my mistakes. Learn from the past 10 years.

Our industry is a big part of the U.S. recovery

The opportunities have never been greater

The challenges have also never been greater

Low interest rates, shrinking new agents, disappearing products

Ethics in the business

Back to basics in selling

Distribution online or offline still king

The future is up to us

We all should care

70

We Are a Very Important Industry

Butch Britton

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