Trends in Life Insurance Products

“What’s Now and What’s New?”

Timothy C. Pfeifer, FSAPfeifer Advisory LLC

2

(23) (41) (18) (3) 2 (14)

-30

-25-20

-15-10

-50

510

% ∆ (YOY)

UL VL VUL Term WL Total

Premium Change by Product Type

The 4th Quarter of 2008 Put a Somber End to the Year

Source: LIMRA

3

(8) (33) (17) (1) 2 (7)

-25

-20-15

-10-5

05

1015

% ∆ (YOY)

UL VL VUL Term WL Total

Premium Change by Product Type

For All of 2008, Variable Life Sales Endured Biggest Wallop

Source: LIMRA

4

Some Additional Thoughts on 2008 Life Sales

Policy Counts Dropped 10% (Q4)/4% (YTD)

5

Some Additional Thoughts on 2008 Life Sales

Policy Counts Dropped 10% (Q4)/4% (YTD)2007 Sales Levels Created Tough

Benchmark

6

Some Additional Thoughts on 2008 Life Sales

Policy Counts Dropped 10% (Q4)/4% (YTD)2007 Sales Levels Created Tough

BenchmarkLarge Mutuals Boosted Market Share

7

Some Additional Thoughts on 2008 Life Sales

Policy Counts Dropped 10% (Q4)/4% (YTD)2007 Sales Levels Created Tough

BenchmarkLarge Mutuals Boosted Market Share

Is this really so bad?

8

Other Elements Steering the Life Insurance Business

Mortality Experience continues to improve, but slope questions remain

Underwriting Practices evolving, particularly around older ages, teleunderwriting

Regulation Federal versus state showdown, tax benefits under microscope

Reserves/Capital

PBA slowly approaching realization – few LICs reflect now

Life Settlements

Report of its death are pre-mature, but wounded

Combo Products

Development activities continue, but sales slow to emerge

Reinsurance Hunger for bold reinsurer action in midst of retrenchment

9

Traditional Whole Life Performing Well in Current

ClimateReasons

1. Perceived stability of mutual life insurance companies

2. Competitive dividend scales3. Strong sales forces4. Effective use of riders

Outlook

1. At least a 2-3 year period of rising market-share2. Dividend scales must be lowered3. Remains bread-and-butter of large mutuals, as long

as tax advantages remain

10

Universal Life, Though Under Pressure, Continues to Lead

the Life Story

Largest market share Shadow accounts Capital costs/LOCs Older age focus

(IA=66) Lowest profit hurdle

Minority of market Difficult interest rates 2001 CSO constraint Relatively young IA Sharpest sales hit

Slightly below ULSG Strong story today Capital efficient IA = 62 Should see sales climb

ULSGCash

AccumulationUL

Current Assumption

UL

11

Term Life has Proven to be Resilient, but Segments Face

Challenges• Twenty-year product key seller and rate

dropping locus• Dial-a-Term creates customization

alternatives• Reinsurers movements affecting long level

periods• Business arriving at end of level premium

period• Age extensions

12

Return of Premium Term has Uncertain Future in Light of

AG CCC• Reached 15-20% of term market• Low lapse rates, mortality driven up ROP

surcharge• AG CCC mandates smoother grading to

“endowment value” (1/1/09 for new filings)• New product designs, remaining questions

on reserves, 7702• Responses may include higher premiums,

partial refunds, lower comp

13

What are the Expected Future Waves?

1. Term market share strengthens, sales dominated

2. Capital/LOC solutions created unlevel field3. Some ULSG products disappear, watch CAUL4. Resurrection of non-par WL5. Favorable mortality patterns continue, but

slow6. Protection products jewel of acquisition deals7. Profit targets drop to maintain share,

cashflow

PREDICTIONS