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Sales and Trends in Indexed Annuity Product Development Iowa Actuaries Club February 22, 2008 Sheryl J. Moore President and CEO AnnuitySpecs.com Advantage Group Associates, Inc. Slide 2 Source:AnnuitySpecs.com Slide 3 Indexed Annuity Sales Slide 4 Inverse Relationship with CD Rates and IA Sales Slide 5 4Q2007 Indexed Annuity Sales Allianz Life $1,537,573,80123.89% AVIVA1,062,241,58816.50% American Equity 524,847,3498.15% Old Mutual 447,006,7786.95% Midland National Life 401,500,0006.24% ING293,020,9474.55% North American Company 247,200,0003.84% GAFRI 227,359,3903.53% Equitrust 221,033,2413.43% Jackson National Life Total Sales 214,339,502$6,449,054,7233.33% Slide 6 Indexed Annuity Sales 2007 Allianz Life $5,423,663,03121.53% AVIVA4,346,357,95117.25% American Equity 2,093,575,7568.31% Old Mutual 1,960,027,3637.78% Midland National Life 1,655,900,0006.57% ING1,312,603,9295.21% GAFRI1,007,147,3904.00% Jackson National Life 893,500,5753.55% Equitrust 878,471,0633.49% Conseco/Bankers Life Total Sales 783,926,525$25,192,760,2883.11% Slide 7 Sunshine in your email box! Annuity Writers Face More Regulatory Control Over Sales, But Less Control Over Those Who Sell Them Annuity Writers Face More Regulatory Control Over Sales, But Less Control Over Those Who Sell Them Quick Q&A on Fixed Indexed Annuities Quick Q&A on Fixed Indexed Annuities The DOWNSIDE to Market Proof Annuities The DOWNSIDE to Market Proof Annuities Slide 8 Sunshine in your email box! New Regs, Lawsuits Help Make Annuities Less Restrictive New Regs, Lawsuits Help Make Annuities Less Restrictive NAIC Releases List of Top Annuity Consumer Complaints NAIC Releases List of Top Annuity Consumer Complaints Iowa Tests Annuity Disclosure Documents Iowa Tests Annuity Disclosure Documents Slide 9 Sunshine in your email box! The Trade-Offs of Annuity Guarantees The Trade-Offs of Annuity Guarantees Regulators Announce Joint Suitability Project Regulators Announce Joint Suitability Project Official Settles One Annuity Suit, Starts Another Official Settles One Annuity Suit, Starts Another Allianz Life Arm Agrees to Pay $10 million Fine Allianz Life Arm Agrees to Pay $10 million Fine Slide 10 Sunshine in your email box! California Official Settles Annuity Suitability Action California Official Settles Annuity Suitability Action Allianz to Pay $10 Million to Settle Lawsuit Allianz to Pay $10 Million to Settle Lawsuit Annuity Writers Face Issues of Sales Suitability Annuity Writers Face Issues of Sales Suitability Insurance Commissioner Poizner Announces $10 Million Settlement with Allianz for Allegedly Deceiving Seniors into Purchasing Unsuitable Annuities Insurance Commissioner Poizner Announces $10 Million Settlement with Allianz for Allegedly Deceiving Seniors into Purchasing Unsuitable Annuities Slide 11 Sunshine in your email box! Insurance Chief Says Allianz Life Insurance Company of North America Sold Ill-Fitting Policies to Seniors Insurance Chief Says Allianz Life Insurance Company of North America Sold Ill-Fitting Policies to Seniors Fixed Annuity Companies Pledge Help to Stop Unfair Sales Practices Fixed Annuity Companies Pledge Help to Stop Unfair Sales Practices Minnesota Settles Annuities Case for Senior Citizens Minnesota Settles Annuities Case for Senior Citizens Slide 12 Sunshine in your email box! Allianz Life Reaches $10 Million Dollar Settlement with Calif. Over Annuity Sales Suitability Allianz Life Reaches $10 Million Dollar Settlement with Calif. Over Annuity Sales Suitability American Equity Reports $5 Million Loss in Fourth Quarter American Equity Reports $5 Million Loss in Fourth Quarter American Nationals Fourth Quarter Profit Down 51.9% on Drop in Investment Income American Nationals Fourth Quarter Profit Down 51.9% on Drop in Investment Income Slide 13 Sunshine in your email box! Service provided to my clients for a single month Service provided to my clients for a single month A single positive article? Three neutral articles Sixteen different negative articles All public sources of information All public sources of information Ready and available for our clients on Google! Slide 14 How did we get here? Slide 15 How can we stop it? Slide 16 Popular Product- Then Direct 16 Direct 16 14-year surrender charge/25% scale year one 70% @ 3% minimum gtd. surrender value 4 daily AVG strategies and a fixed No bonus Full AV upon death, 10% PF w/ds year 2 Issued to age 75 Street level commission of ??? Slide 17 Top Ten Product Analysis- Then 2Q2003 Slide 18 10/10 States Slide 19 10/10 Rule and Product Development What is it? What is it? Desk drawer regulation limiting surrender charges and scales on policy forms for annuities 10 years/10% scale How has it changed products /distribution? How has it changed products /distribution? B/Ds in the mix Product trends since 10/10 Product trends since 10/10 Surrender charges, bonuses, compensation, vesting Slide 20 Lower Surrender Charges on the Rise Slide 21 Premium Bonuses: Price For All That You Can Slide 22 Comp- All Over the Board Slide 23 Compensation Trends Indexed Annuity commission received by the agent averaged 7.74% of premium as of 4Q07 Indexed Annuity commission received by the agent averaged 7.74% of premium as of 4Q07 A reduction of 0.31% from 3Q07 Average SLC for all products on the market as of 4Q07 is 6.93% Average SLC for all products on the market as of 4Q07 is 6.93% A reduction of 0.02% from 3Q07 Presently, street level compensation ranges from 1% - 13% on all products Presently, street level compensation ranges from 1% - 13% on all products A single product paying 13%, one paying 12%, then several paying 11% Slide 24 Popular Product- Now Index Fortifier X Index Fortifier X 10-year surrender charge/12% scale year one 100% @ 3% minimum gtd. surrender value - SC Ann. PTP, Mo. AVG, Mo. PTP and a fixed 5% up-front bonus Greater of full AV or MGSV upon death, 10% PF w/ds year 2 Issued to age 85 Street level commission of 8.50% Slide 25 Top Ten Product Analysis- Now 4Q2007 Slide 26 What are Carriers Doing? Lowering Surrender Charges Lowering Surrender Charges Lowering Bonuses/using vesting schedules Lowering Bonuses/using vesting schedules Lowering Compensation with new product dev. Lowering Compensation with new product dev. Lowering Issue Ages Lowering Issue Ages Pulling non-compliant products Pulling non-compliant products Slide 27 What are Carriers Doing? Not developing new crediting methods Not developing new crediting methods Keeping crediting methods simple Keeping crediting methods simple Revising marketing materials Revising marketing materials Requiring suitability forms in all states Requiring suitability forms in all states Slide 28 IA Rider Product Development Guaranteed Minimum Death Benefits (GMDBs) Guaranteed Minimum Death Benefits (GMDBs) Guarantee 4 5% accumulation on the DB, in exchange for a 0.50% annual charge from the Account Value i.e. such as on the BPA products from American Investors Guarantee that beneficiaries will receive up to 200% accumulation on premiums, less withdrawals, in exchange for lower rates, caps, etc. Offered on a series of Conseco products Slide 29 IA Rider Product Development Guaranteed Minimum Withdrawal Benefits (GLWBs) Guaranteed Minimum Withdrawal Benefits (GLWBs) Guarantee annual withdrawals for life (at a % usually based on clients age), regardless if Account Value goes to zero, in exchange for a charge Explicit charge as a % of the Account Value Lower caps, participation rates, and fixed rates in exchange for the benefit Some other inherent pricing mechanism, i.e. defer product ten years, then take out lifetime income Slide 30 IA Rider Product Development Fifteen IA carriers currently offering these benefits Fifteen IA carriers currently offering these benefits Two more currently filed or pending launch Only three one year ago Four carriers have already revised their first versions Designs range from simple to complex and deserve proper training Designs range from simple to complex and deserve proper training Some charge for the rider even in the event there is no gain Some permanently lower the rates once lifetime income is initiated Slide 31 IA Rider Product Development Benefit Base Bonus- credits a premium bonus on the Benefit Base of a Guaranteed Lifetime Withdrawal Benefit (GLWB) product; three products in the market feature this type of bonus and riders as well Benefit Base Bonus- credits a premium bonus on the Benefit Base of a Guaranteed Lifetime Withdrawal Benefit (GLWB) product; three products in the market feature this type of bonus and riders as well HUGE propensity for miscommunication on this bonus, which is not up-front Client cannot walk away with the bonus if they were to cash surrender Must take income stream in order to receive bonus Bonuses as high as 15% presently Slide 32 IA Rider Product Development Enhanced Benefits on GLWBs provide a higher withdrawal percentage, in the event on Long Term Care situations Enhanced Benefits on GLWBs provide a higher withdrawal percentage, in the event on Long Term Care situations Require that rider must have been in force for five years Annuitant must meet 2/6 ADLs Situation must be expected to be permanent Not available on joint life Where a single life payout percentage may have provided 5% withdrawals for life for a client aged 60, this enhanced benefit would provide 8% withdrawals for life Slide 33 IA Rider Product Development Long Term Care (LTC) riders Long Term Care (LTC) riders Two carriers offer such a benefit today More carriers in the wings, due to Pension Protection Act Benefits increase liquidity in time of need Benefits increase liquidity in time of need Client must not be able to 2/6 ADLs, and be receiving care Qualification period may be required (rider on IA for six years) Elimination period must be met (45-90 days) No underwriting or simplified issue Benefit cost differs: 0.55% or 0.27%- 2-00% based on age/sex Either increase value for withdrawals, or take full liquidity over # of yrs Slide 34 Other Indexed Annuity Trends Rainbow crediting methods- where you perform your normal index crediting strategy calculation, but use a blend of indices, and either perform a lookback, or use a weighting of the indices Rainbow crediting methods- where you perform your normal index crediting strategy calculation, but use a blend of indices, and either perform a lookback, or use a weighting of the indices Annual Point-to-Point or Monthly Averaging thus far Propensity to use international indices on these strategies FTSE 100 DJ Euro Stoxx 50 Nikkei 225 Slide 35 Other Indexed Annuity Trends Rainbow crediting methods Rainbow crediting methods Everybodys doin it Allianz: weighting DJIA 35%FTSE 20% Lehman 35%Russell 10% American Investors Life: lookback S&P 500, Nasdaq-100, DJIA 50%, 30%, 20% to Best, Next best, Least best performing Aviva Life and Annuity: lookback S&P 500, Nasdaq-100, DJIA 50%, 30%, 20% to Best, Next best, Least best performing ING: weighting S&P 500 70% DJ Euro Stoxx 50 30% Four more carriers with pending strategies Slide 36 Other Indexed Annuity Trends Ten year, 10% bonus products Ten year, 10% bonus products How? Products with lower comp., higher rates Products with lower comp., higher rates Why? New BPA Select products- charging clients an explicit AV charge for indexed allocations New BPA Select products- charging clients an explicit AV charge for indexed allocations This is in addition to charging for optional GMDB/premium bonus Slide 37 Overall Sales are down, but so are CD rates Sales are down, but so are CD rates Things should start looking better in 2008 Things should start looking better in 2008 Looks like the regulators are cleaning things up Looks like the regulators are cleaning things up But some carriers are trying to mess things up for the rest of us But some carriers are trying to mess things up for the rest of us Slide 38 Overall Looks like by cleaning up our product development, it is creating less problems with suitability Looks like by cleaning up our product development, it is creating less problems with suitability It looks like GLWB are beginning to drive sales It looks like GLWB are beginning to drive sales And it is a GREAT time to be a consultant! And it is a GREAT time to be a consultant! Slide 39 Any Questions? Slide 40 Sheryl J. Moore sheryl.moore@annuityspecs.com heryl.moore@annuityspecs.comheryl.moore@annuityspecs.com (515) 262-2623