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.
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
Fundamentals Out of Balance Returns Risk 3
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% 1977 1982 1987 1992 1997 2002 2007
Negative Disruptors
Capital Conundrum Excess capital Low returns Buy back shares? Acquire? Write more business? & Increased capital requirements Downturn protection Write-offs Volatility Product related Investments
Total U.S. Individual Life Sales 20 18 16 14 12 10 8 6 4 2 0 Policies (millions) Premium ($billions) 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Policies Policy Count Up 2% Premium Source: LIMRA s Individual Life Sales Survey and LIMRA Estimates 8 *Preliminary estimates 16 14 12 10 8 6 4 2 0
Americans Households Owning Individual Life Insurance 34% currently own policies they bought face-to-face 72% 65% 62% 55% 50% 50% 44% 1960 1976 1984 1992 1998 2004 2010 Source: LIMRA Household Trends in U.S. Life Insurance Ownership, 2010 9
More Americans Believe They Need More Life Insurance 2004 44 percent 2010 50 percent
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%
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 $5,311 1996 1998 2000 2002 2004 2006 2008 2010 Mutual Funds Life Insurance Industry
2011 Saw Highest Annuity Sales Since 2008 Fixed Variable $257 $265 $239 $239 $240 $220 $219 $221 $216 $222 Dollars in Billions $65 $68 17 22 31 $74 $86 $126 $132 $99 $99 $111 47 52 50 73 88 100 $164 48 46 43 39 47 49 38 38 32 42 53 74 103 89 88 80 78 73 122 $190 $185 137 111 117 129 133 137 160 184 156 128 140 159 109 111 82 81 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: LIMRA, U.S. Individual Annuities survey. 13
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 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 Fixed % chng from prior Q VA % chng from prior Q
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 $3.8 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
29% 25% 15% 17% 17% 17% 18% 16% 17% 22% 27% 26% 23% 18% High VA GLB Election Rates Drive Sales Q2 2012 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
Look at the changes of the top five VA writers over time Company Name 2004 - 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 184,000,000 2011 - 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
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: $60.9 B Top 5: 59% Jackson Natl. 10% Riversource 5% Jackson Natl. 13% Nationwide 6% Jackson Natl. 13% Jackson Natl. 16% ING 8% Prudential 8% Lincoln Fin. 8% AXA Equit. 9% MetLife 10% Prudential 16% Prudential 19% Lincoln Fin. 8% AXA Equit. 6% MetLife 13% Lincoln Fin. 7% MetLife 15% Prudential 15% Lincoln Fin. 7% Prudential 16% Lincoln Fin. 8% AXA Equit. 6% MetLife 20% MetLife 14% Source: LIMRA, U.S. Individual Annuities survey. 18
Others Are Leaving the Market John Hancock Retreating From Annuity Business AdvisorOne, Nov. 30, 2011 Genworth is Exiting the Variable Annuity Market Investment News, Jan. 6, 2011 SunLife Surprise Exit Darkens Mood of Life Insurance Seller Investment News, Dec. 12, 2011 The Hartford to Sell Annuity Distribution As Paulson Presses CEO Business Week, April 26, 2012
The REAL Opportunity Is With Today s Pre-Retirees Average age of an annuity buyer ($ In Trillions) Source: Scaling the Pre-Retiree Market, LIMRA, 2010
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
Retirees Are Here to Stay 5 The Number of 60-Year-Olds Population (millions) 4 3 2 1 Baby Boomers 75 M Next Gen. 107 M 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 Source: U.S. Census Bureau
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
Two Issues Undermining Retirement Security Longevity Insufficient Funds
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
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% 2002 2006 2007 2008 2009 2010 2011 29% 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
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
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 18-34 (56%) None of the above 49%
Advisors Make a Difference Contribute to a Retirement Plan 78% 43% With Advisor Source: Use of and Impact of Advisors, LIMRA, 2012 Without Advisor
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
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
Longevity Life Expectancy Goes Up As People Age If you live until 75 87.2 If you live until 65 84.2 At birth 78.5 Source: CDC: Health, United States, 2009 http://www.cdc.gov/nchs/data/hus/hus11.pdf#021
Life expectancy has improved over time If you live to 75 85.4 87.2 If you live until 65 81.4 84.2 At birth 73.7 78.5 2009 1980
Retirees Are More Conservative Following the Crisis % of retirees who say that are extremely or somewhat conservative when managing their assets 53% 70% 2008 2011 Survey of retirees, age 55 to 75 in 2008, with $100,000 or more in investable assets.
Americans want to understand what their monthly income will be
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)
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 $0 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 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
Why people don t annuitize
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)