2009 NAVA Marketing Conference A Look Back and a Look Forward The U.S. Variable Annuity Product Landscape Timothy C. Pfeifer, FSA Pfeifer Advisory LLC 2009 NAVA Marketing Conference

Resulting Product Reaction Today and Yesterday Market Drivers Desire for Guarantee Market Collapse and Volatility Aging Population Suitability of Sales Price Sensitivity Desire for Simplicity Resulting Product Reaction Guaranteed Living Benefits Arms Race and GMDBs; Fixed Accounts Target Date Funds Increased prices, shaved or eliminated benefits LTC Combos Income Focus Asset Allocation, L Shares, C Shares Plateauing/falling compensation Fewer investment subaccounts, simpler loan structures

The Key Components of Recent VA Product Activity Re-trenching of Guaranteed Living Benefits Trimmed M&E’s Offset by Higher Rider Charges Focused efforts to Adapt Products to Select Distribution Channels Life/Health Combination Features Gradual realignment of compensation to asset-based Streamlining of Subaccount Choices

What Do Trends in VA Sales Tell Us? Market share percentage of Qualified Sales almost doubled over last ten years. Income guarantees, guaranteed death and living benefits, flexibility all resonating.

What Do Trends in VA Sales Tell Us? Market share percentage of Qualified Sales almost doubled over last ten years. Income guarantees, guaranteed death and living benefits, flexibility all resonating. Meaningful shifting of sales leaders occurred in 2008. GLBs certainly partially explain, but focused wholesaling and new distribution arrangements also key.

What Do Trends in VA Sales Tell Us? Continued growth in share of bonus VA Products. May be hard to sustain due to capital costs, but address client fears.

What Do Trends in VA Sales Tell Us? Continued growth in share of bonus VA Products. May be hard to sustain due to capital costs, but address client fears. B- and L-share products continue to dominate VA market. Life insurers have positioned themselves to take on significant persistency and investment return risk.

What Product Trends May Be in Store for 2009? Paring back of GLBs, increased prices Re-structuring of compensation to share risk Serious attempts to raise A-share penetration Capital Conserving Elements Continued interest in Bonus Products Return of appealing Dollar Cost Averaging Greater focus on fixed account opportunities Attracting and Keeping the Cautious Customer

Longer Term, What Does the VA Market Look Like? Industry consolidation, once capital appears. Greater market convergence of VA and FIA. Intensification of retention efforts and associated product solutions. Given developments in Social Security, Defined Benefit plans, even greater focus on income solutions of all types.