Retirement Income: The Future of Distribution Trends, Opportunities and Challenges A LIMRA Retirement Markets Presentation

© LL Global, Inc. SM Agenda  Retirement Income Market  State of Retirees and Pre-Retirees  Industry Response  The Future of Distribution Page 2 This presentation is a benefit of LIMRA membership. No part may be shared with other organizations or reproduced in any form without LIMRA's written permission.

© LL Global, Inc. SM Page 3 Source: LIMRA analysis of U.S. Census Bureau’s Current Population Survey, March 2009 Supplement Number of Retirees by Age Over 30 million Americans approaching “Income Phase” 33 million pre-retirees age million pre-retirees age 40+ Millions Percent of Retired

© LL Global, Inc. SM Source: LIMRA analysis of U.S. Census Bureau’s Current Population Survey, March 2009 Supplement Number of Projected Retirees by Age The “Income Market” likely to increase 50% by 2025 Page 4

© LL Global, Inc. SM Page 5 Percent Receiving Employment Based Pension Source: EBRI estimates of data from the Current Population Survey, Department of Labor, 2010 More Americans entering retirement Without Pensions Median Annual Pension is $12,000

© LL Global, Inc. SM Assets will be Re-allocated as HH’s transition to retirement Financial Assets by Age and Retirement Status Source: LIMRA analysis of 2007 Survey of Consumer Finances, Federal Reserve Board, Page 6

© LL Global, Inc. SM Rollover market to exceed $600 billion in 3 years Sources: Investment Company Institute, The IRA Investor Profile: Traditional IRA Investors’ Rollover Activity, 2007 and 2008 (2010) and LIMRA analysis of Internal Revenue Service, Statistics of Income Bulletins and Bureau of Economic Analysis, NIPA Table 6.11, “Table 6.11D. Employer Contributions for Employee Pension and Insurance Funds by Industry and by Type, years 2001–2007. Figures based on total IRA inflows resulting from rollovers. Includes some IRA-to-IRA rollovers. IRA Rollovers (in billions) 7

© LL Global, Inc. SM Page 8 State of Pre-retirees & Retirees

© LL Global, Inc. SM Consistent Need for Income to Cover “Basics” Percent of Retirement Expenses by Household Income Source: Retirement Income Trade-offs, Implications for Product Development, LIMRA, Survey based on 1,188 pre-retirees and retirees aged 55 to 75 with at least $100,000 in household current investable assets. Page 9

© LL Global, Inc. SM Middle/Affluent Lack Guaranteed Income Sources Source: LIMRA analysis of U.S. Census Bureau’s Current Population Survey, March 2009 Supplement. Analysis based upon fully retired households. Percent of Essential Expenses by Household Income Guaranteed Income Sources by Household Income Source: Retirement Income Trade-offs, Implications for Product Development, LIMRA, Survey based on 1,188 pre-retirees and retirees aged 55 to 75 with at least $100,000 in household current investable assets. Page 10

© LL Global, Inc. SM Most Important Source of Retirement Income Source: Retirement Income Trade-offs, Implications for Product Development, LIMRA, Survey based on 1,188 pre-retirees and retirees aged 55 to 75 with at least $100,000 in household current investable assets. Note: Other sources include savings in Mutual Fund/Brokerage, Annuities, Equity in home, Real estate/rental income, inheritance and salary and wages. Paradigm Shift in Expectations Page 11

© LL Global, Inc. SM Average 401(k) account balance for plan participants in their 50s and 60s = $77,650 Source: VanDerhei, Jack, Sarah Holden, and Luis Alonso, “401(k) Plan Asset Allocation, Account Balances, and Loans,” Employee Benefits Research Institute (EBRI) Issue Brief No. 335, October Challenge: Low Savings Page 12 Average 401(k) Balance by Age and Tenure ($ in thousands)

© LL Global, Inc. SM Challenge: Manage Timing, Markets & Inflation Value of Portfolio Retirement age 62, $500,000 initial portfolio 4.05% initial withdrawals Portfolio value Note: The portfolio has an asset allocation of 42.5% large company stocks, 17.5% small company stocks, and 40% intermediate-term government bonds and is rebalanced annually. The initial withdrawal amount was $20, 250 or 4.05% of beginning assets; thereafter adjusted based on prior year’s inflation rate. Age Page 13

© LL Global, Inc. SM Longevity Expectations Source: Retirement Income Trade-offs, Implications for Product Development, LIMRA, Survey based on 1,188 pre-retirees and retirees aged 55 to 75 with at least $100,000 in household current investable assets. Challenge: Outliving Assets From Retirement Page 14 Pre-retirees Retirees

© LL Global, Inc. SM Challenge: Working Longer Timing of Retirement Source: Will Retirement Last a Lifetime?, LIMRA, Society of Actuaries, and InFRE, Survey based on 1,524 retirees aged 55 to 75 with at least $100,000 in household investable assets. Page 15

© LL Global, Inc. SM Percent of pre-retirees Source: LIMRA survey of 1,000 pre-retirees, February Challenge: The Unexpected Page 16

© LL Global, Inc. SM Only 30% of pre- retirees consider themselves to be very prepared for retirement Source: LIMRA survey of 1,000 pre-retirees, February Note: Retirement preparedness measured on a 10-point scale. “Very prepared” based on values No wonder: Pre-Retirees Feel “Unprepared” Page 17 “Very Prepared” by Household Income Level

© LL Global, Inc. SM Page 18 Industry Response to Opportunity: Product Manufacturers Distributors

© LL Global, Inc. SM U.S. Individual Annuity Sales 19 Source: LIMRA, U.S. Individual Annuities survey. Dollars in Billions

© LL Global, Inc. SM Demand for Income Benefit Driving VA Sales Q VA New Sales In Billions Source: LIMRA, Variable Annuity Guaranteed Living Benefit Election Tracking Survey. VA GLB Election Rates When Any GLB Available 20

© LL Global, Inc. SM Fixed Deferred Annuity Sales Source: LIMRA, U.S. Individual Annuities survey. Dollars in Billions 21

© LL Global, Inc. SM Indexed GLB election rates Source: LIMRA, Indexed Annuity Guaranteed Lifetime Withdrawal Benefit Elections Survey. Industry Indexed Annuity GWLB Election Rates 22

© LL Global, Inc. SM Page 23 Source: Guaranteed Living Benefit Utilization Study – 2009 Data, LIMRA 2011 Based on 1,278,547 contracts issued in respective years and still in force at the end of Older GLB clients are taking income

© LL Global, Inc. SM Immediate Annuity Sales Source: LIMRA, U.S. Individual Annuities survey. Dollars in Billions 24 Amounts less than $0.5 billion not shown

© LL Global, Inc. SM Source: LIMRA, U.S. Individual Annuities survey. 25 Deferred annuity assets have reached high Dollars in Billions

© LL Global, Inc. SM Dollars in Billions Annuity Sales To grow 2% over next 4 years CAGR 2% 3% Source: LIMRA, U.S. Individual Annuities survey. 26

© LL Global, Inc. SM SPIA sales to reach $13b; 10 Days of Rollovers Source: LIMRA Page 27

© LL Global, Inc. SM The Future of Distribution? Page 28

© LL Global, Inc. SM Q Fixed Annuity Sales by Distribution Channel Source: US Individual Annuities, LIMRA Dollars in Billions

© LL Global, Inc. SM Banks/Career Agents lead Fixed-Rate Deferred Sales 30 Source: LIMRA, U.S. Individual Annuities survey.

© LL Global, Inc. SM Career followed closely by Nat’l B/D in Fixed Immediate 31 Source: LIMRA, U.S. Individual Annuities survey.

© LL Global, Inc. SM Independent Agents Dominate Indexed Annuity Sales 32 Source: LIMRA, U.S. Individual Annuities survey.

© LL Global, Inc. SM Advisors are “under-engaged” as clients enter retirement How Advisors Help Retirees Source: Will Retirement Assets Last a Lifetime?, LIMRA, Society of Actuaries, and InFRE, Survey based on 1,524 retirees aged 55 to 75 with at least $100,000 in household investable assets. Investment related Retirement planning related Page 33

© LL Global, Inc. SM Retiree Portfolio Longevity with Immediate Annuity Source: Liquidity and the Value of Annuitization, LIMRA, Illustration of 1969 to 1998, the worst 30-year period out of 53 possible scenarios since The portfolio has an asset allocation of 42.5% large company stocks, 17.5% small company stocks and 40% intermediate-term government bonds and is rebalanced annually. An annual payout rate of 6.30% was based on actual single-life immediate annuity quotes with inflation adjustments for a hypothetical 65-year-old male in January The initial withdrawal amount was 4.5% of beginning assets; thereafter annual withdrawals were adjusted based on the prior year’s inflation rate. The hypothetical portfolio had a 50- basis-point charge assessed annually (following the withdrawals and the investment growth or loss. Many advisor lack information on role of income products Page 34

© LL Global, Inc. SM Page 35 Buyer preferences based on age and source of money 60% of buyers are age 75 & older 72% of buyers are age 74 or less Percentage of SPIA Buyers by Age Source: Guaranteed Income Annuities, LIMRA The study is based on 55,311 immediate contracts issued in 2008 and 2009.

© LL Global, Inc. SM Source: Based on CANNEX top quotes on $100,000 for a 65 year old male as of 12/07/2010 Page 36 FeaturesLessMore Features in Lifetime Income Annuities Monthly payout Buyers Weigh Trade-off’s GP – 20+ years

© LL Global, Inc. SM Clients look for decision-making help when “triggers” occur Retirement Decision Points Source: LIMRA, The Retirement Income Reference Book 2009 Page 37

© LL Global, Inc. SM Confidential and proprietary information – for institutional use only. 38 Clients seek support across a broad spectrum of issues Lifestyle budgeting Asset allocation Social Security timing Medicare eligibility and enrollment Minimizing taxes Long term care Survivor income Estate Planning

© LL Global, Inc. SM Distribution Hierarchy Leveraging Contract-Level Data Optimize rep productivity by channel, region, firm size Track your market share against competitors at the local level Use regional results as benchmarks for performance Determine channel penetration and areas for growth 39 CustomerSales repFirm 1    FirmCarrier Contract #NPNEINNAIC # LIMRA’s COMPASS: DATA REPORTING INITIATIVE

© LL Global, Inc. SM Collaboration is the best kept secret to success Lower support Multi- Advisor/Rep Higher support Likelihood of Success (Top Quartile among all Financial Advisors (Indexed to 100) 100 Solo *Note 1. Based on rep with 250 clients, and Note 2. Success means top quartile performance of all financial services advisors 40

© LL Global, Inc. SM * Percentages based on individuals who "strongly" or "somewhat" agreed with the statement. Source: Advisor Perspectives on Retirement Planning, LIMRA, Education is being directed to the financial professional 41

© LL Global, Inc. SM *Percentages based on individuals who "strongly"/"somewhat" agreed or "strongly"/"somewhat" disagreed with the statement. "Neither agree nor disagree" excluded from chart. Source: Advisor Perspectives on Retirement Planning, LIMRA, More than 6 in 10 advisors believe guaranteed income solutions are well-received by clients 42

© LL Global, Inc. SM Using Social Media to Project & Protect our Message 43

© LL Global, Inc. SM A Mobile Application that Engages & Educates

© LL Global, Inc. SM Execution is Key Targeting Training ToolsTesting 45

© LL Global, Inc. SM Distribution of the Future? » Pre-retirees will be more engaged, better informed and prepared to make decisions – new technologies will create consumers who are motivated to seek out solutions » The retirement income discussion will permeate the relationship product manufactures, service providers and advisors have with DC Plan participants » Most pre-retirees will continue to fear making a mistake with their single largest financial asset – they will seek out products they can understand and advisors/firms they can trust » Successful Advisors will embrace the role of product allocators, and deliver a broader array of services to retirees Page 46

© LL Global, Inc. SM HARTFORD ATLANTA MIAMI TORONTO LONDON KUALA LUMPUR SHANGHAI HO CHI MINH CITY SEOUL Your Trusted Source for Retirement Industry Knowledge Thank you. Paul S. Henry: ;