S&P 2012 Variable Annuity & Life Insurance Summit October 9, 2012

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1 S&P 2012 Variable Annuity & Life Insurance Summit October 9, 2012 Robert A. Kerzner, CLU, ChFC President and Chief Executive Officer LIMRA, LOMA & LL Global, Inc.

2 Opportunities Negative Disruptors Demographics New Retirement Models Product Development Longevity Distribution Market Segmentation Tax Changes M&A Legislative & Regulatory Change Investment Issues Capital & ROE Restraints Risk Management Accounting Issues Longevity Distribution Tax Changes M&A Competition Consumer Perceptions Uncertain political environment

3 Fundamentals Out of Balance Returns Risk 3

4 Interest Rates Declined Avg. 6 Month CD Interest Rates Last 35 Years 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%

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6 Negative Disruptors

7 Capital Conundrum Excess capital Low returns Buy back shares? Acquire? Write more business? & Increased capital requirements Downturn protection Write-offs Volatility Product related Investments

8 Total U.S. Individual Life Sales Policies (millions) Premium ($billions) Policies Policy Count Up 2% Premium Source: LIMRA s Individual Life Sales Survey and LIMRA Estimates 8 *Preliminary estimates

9 Americans Households Owning Individual Life Insurance 34% currently own policies they bought face-to-face 72% 65% 62% 55% 50% 50% 44% Source: LIMRA Household Trends in U.S. Life Insurance Ownership,

10 More Americans Believe They Need More Life Insurance percent percent

11 Group Life & DI Market Is Highly Concentrated Group Life 2011 Sales In Force Prudential MetLife MetLife Prudential New York Life Minnesota Life Minnesota Life Hartford Hartford New York Life CIGNA CIGNA Market share: 51% Market share: 59% Top five companies represent more than half of the market! Group DI 2011 Sales In Force Hartford Unum CIGNA Hartford Unum MetLife Lincoln Financial Group CIGNA MetLife Aetna Market share: 53% Market share: 55%

12 Where are the Assets? Dollars in billions $10,398 $9,604 $11,821 $5,525 $3,526 $2,827 $2,324 $6,965 $8,095 $6,368 $4,253 $3,182 $3,380 $4,823 $4,648 $5, Mutual Funds Life Insurance Industry

13 2011 Saw Highest Annuity Sales Since 2008 Fixed Variable $257 $265 $239 $239 $240 $220 $219 $221 $216 $222 Dollars in Billions $65 $ $74 $86 $126 $132 $99 $99 $ $ $190 $ Source: LIMRA, U.S. Individual Annuities survey. 13

14 30% 20% 10% 0% -10% -20% -30% Quarter over Quarter Growth Fixed sales hit record levels Market volatility impact VA sales Low interest rates dampen fixed sales 1Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2012 Fixed % chng from prior Q VA % chng from prior Q

15 Indexed Annuity Growth 3Q 2010 Indexed hit record-level sales Dollars in billions $7.1 $7.4 $6.4 $6.5 $5.8 $8.7 $8.2 $7.0 $7.1 $8.6 $1.3 $

16 29% 25% 15% 17% 17% 17% 18% 16% 17% 22% 27% 26% 23% 18% High VA GLB Election Rates Drive Sales Q VA New Sales $28.8 Billion VA GLB Election Rates When Any GLB Available GLB Not Available 14% GLB Not Elected 12% Hybrid GLB GMWB GMAB GMIB GLWB 90% 89% 89% 87% 87% 88% 89% 87% 88% 88% 88% 90% 90% 88% GLB Available 86% GLB Elected 88% 55% 59% 69% 64% 64% 64% 65% 65% 65% 61% 57% 59% 63% 66% 1Q '09 2Q '09 3Q '09 4Q '09 1Q '10 2Q '10 3Q '10 4Q '10 1Q '11 2Q '11 3Q '11 4Q '11 1Q '12 2Q '12 Source: LIMRA, Variable Annuity Guaranteed Living Benefit Election Tracking Survey. 16

17 Look at the changes of the top five VA writers over time Company Name Top 5 VA Market Share 2007 Top 5 VA Market Share Variable Sales AXA Equitable 16,250,480 MetLife 15,264,335 TIAA-CREF 14,064,953 ING 13,568,224 Hartford Life 13,254,500 Industry 184,000, Top 5 VA Market Share Company Name Variable Sales MetLife 28,438,597 Prudential Annuities 20,236,490 Jackson National Life 17,494,386 TIAA-CREF 13,441,787 Lincoln Financial Group 9,356,288 Industry 157,900,000 Company Name Variable Sales Hartford Life 15,243,446 TIAA-CREF 13,052,030 Axa Equitable 10,393,684 ING 9,540,671 AIG 9,532,081 Industry 132,900,000 Record Sales

18 Market Share at Top 5 Retail VA Sales Leaders Since 2008 Has Grown 2008: $125.0 B Top 5: 43% 2009: $96.8B Top 5: 53% 2010: $112.5B Top 5: 59% 2011: $130.8B Top 5: 61% Q2 YTD 12: $60.9 B Top 5: 59% Jackson Natl. 10% Riversource 5% Jackson Natl. 13% Nationwide 6% Jackson Natl. 13% Jackson Natl. 16% ING 8% Prudential 8% Lincoln Fin. 8% AXA Equit. 9% MetLife 10% Prudential 16% Prudential 19% Lincoln Fin. 8% AXA Equit. 6% MetLife 13% Lincoln Fin. 7% MetLife 15% Prudential 15% Lincoln Fin. 7% Prudential 16% Lincoln Fin. 8% AXA Equit. 6% MetLife 20% MetLife 14% Source: LIMRA, U.S. Individual Annuities survey. 18

19 Others Are Leaving the Market John Hancock Retreating From Annuity Business AdvisorOne, Nov. 30, 2011 Genworth is Exiting the Variable Annuity Market Investment News, Jan. 6, 2011 SunLife Surprise Exit Darkens Mood of Life Insurance Seller Investment News, Dec. 12, 2011 The Hartford to Sell Annuity Distribution As Paulson Presses CEO Business Week, April 26, 2012

20 The REAL Opportunity Is With Today s Pre-Retirees Average age of an annuity buyer ($ In Trillions) Source: Scaling the Pre-Retiree Market, LIMRA, 2010

21 Magnitude of the Market 10,000 Boomers are turning 65 each day. There are currently more than 42 million retirees in the U.S. and the number is expected to grow to 65 million by 2025 Sources: Pew Research Center, U.S. Census Bureau 21

22 Retirees Are Here to Stay 5 The Number of 60-Year-Olds Population (millions) Baby Boomers 75 M Next Gen. 107 M Source: U.S. Census Bureau

23 Strong Desire, but Low Accomplishment 99% 97% 93% 91% 89% 71% 55% 77% 7% 16% 9% 7% Enough money for retirement Adequate medical coverage Income replacement if primary wage earner can't work Education funds Adequate life inusrance Adequate resources to pay for long term care expenses Life Goal Have Achieved Source: 2008 Middle Market Study

24 Two Issues Undermining Retirement Security Longevity Insufficient Funds

25 U.S. Households Have Few $500,000 + Investable Assets* $250,000 to $499,999 9% 10% 35% 70% of American households Have less than $100K in investible assets $100,000 to $249,999 $50,000 to $99,999 11% 11% 24% All U.S. Households $10,000 to $49,999 <$10,000 *Investable assets include retirement savings plans, and exclude homes and businesses. Source: 2010 U.S. Life Ownership Study

26 Many Have Little or No Savings Percent of workers who say they have less than $25,000 in savings and investments* 56% 53% 52% 54% 50% 49% 48% % of workers say they have less than $1,000 in savings *not including primary residence or DB Plan Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc, Retirement Confidence Surveys

27 Americans Not Saving Enough Two-thirds of non-retired Americans are not confident that they are saving enough money to last throughout their retirement. Source: LIMRA s enation study, February 2012

28 Nearly Half of Americans Do Not Save in a Retirement Plan Retirement Plans Contributing to: A defined contribution retirement savings plan (e.g., 401(k), 403(b), or 457 plan) Roth IRA 16% 37% Only 8% of consumers are contributing to both a DC plan and a traditional IRA Traditional/rollover IRA SEP/SIMPLE IRA 4% 15% More likely among those age (56%) None of the above 49%

29 Advisors Make a Difference Contribute to a Retirement Plan 78% 43% With Advisor Source: Use of and Impact of Advisors, LIMRA, 2012 Without Advisor

30 Consumers Who Use Advisors Save More Percent of consumers who defer more than 7% of their income into employer s defined contribution retirement savings plan. 61% 38% With Advisor Source: Use of and Impact of Advisors, LIMRA, 2102 Without Advisor

31 Consumers Who Use Advisors Have Greater Confidence 71% 51% 35% 43% 20% Source: Use of and Impact of Advisors, LIMRA, 2012 With Advisor very confident 8% Without Advisor somewhat confident

32 Longevity Life Expectancy Goes Up As People Age If you live until If you live until At birth 78.5 Source: CDC: Health, United States,

33 Life expectancy has improved over time If you live to If you live until At birth

34 Retirees Are More Conservative Following the Crisis % of retirees who say that are extremely or somewhat conservative when managing their assets 53% 70% Survey of retirees, age 55 to 75 in 2008, with $100,000 or more in investable assets.

35 Americans want to understand what their monthly income will be

36 Creating Retirement Income Is #1 Priority 76 percent of pre-retirees and retirees said knowing the check in the mail is most important Source: Retirement Income Trade-Offs, LIMRA (2009)

37 Portfolio Mix for a Lifetime Portfolio Assets $250,000 $200,000 $150,000 0% SPIA, 100% managed portfolio 10% SPIA, 90% managed portfolio 20% SPIA, 80% managed portfolio 30% SPIA, 70% managed portfolio 40% SPIA, 60% managed portfolio $100,000 $50,000 $ Years in Retirement Source: LIMRA, The Retirement Income Reference Book, 2009 Bob Matt tried to LL recreate Global, Inc. this data using SM current interest rates without success. Suggest

38 Why people don t annuitize

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40 Consumers want simpler products As the complexity of the financial products increases, their knowledge, comfort, and willingness to engage in the product decreases. -- Consumer Knowledge and Preferences of Financial Products, LIMRA (2009)

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