Katie Lenzini February 9, /9/ On the Horizon

Question What was the significance of the Corporation for Relief of Poor and Distressed Presbyterian Ministers and of the Poor and Distressed Widows and Children of Presbyterian Ministers? 2/9/2011 2

Answer 2/9/2011 3

Today’s Discussion 1. Market Outlook 2. Life Insurance Trends 3. Annuity Trends 4. On the Horizon 2/9/2011 4

Market Outlook Strengths Economic climate improved from 2008 Surviving companies stronger Increased capital Reduced expenses Potential opportunity in middle market 2/9/2011 5

Market Outlook Weaknesses Dependency on US, global economies Discretionary income Riskier and more complicated products Non-insurance competitors (banks, telemarketing, internet) Overall Outlook = Stable (upgraded from Negative Q2 2010) 2/9/2011 6

Market Outlook Qualities of Top Insurers Strong brand name Broad & varied distribution channel Product diversity Top quality service Advanced technology Pricing power 2/9/2011 7

Question Which life insurer held the most assets at year-end 2009? 2/9/2011 8

Answer 2/9/2011 9

Market Outlook Uncertainties Investments Interest Rates Distribution 2/9/

Question Where do you go for consumer information? 2/9/

U.S. Individual Life Sales Trends 2/9/ Source: LIMRA’s U.S. Individual Life Insurance Sales Trends,

Term Life Insurance Most popular product From insurer’s perspective: Competitive market Little flexibility in premium changes Sensitive to mortality 2/9/

Whole Life High level premiums, not flexible for policyholder From insurer’s perspective: Mutual company uses dividends to reflect experience Profits affected by mortality, interest, expenses, and persistency Resurgence in popularity 2/9/

Universal Life Flexible premiums Unbundled product Secondary Guarantees Specified Premium Shadow Accounts Concern over profitability & level of reserves 2/9/

Variable Universal Life Sales followed stock market Peaked in 2000 Equity-Indexed UL 2/9/

Variable Market Share 2/9/2011 Source: LIMRA - The Future of Flexible Premium Products 17

U.S. Individual Life Annualized Premium Market Share 2/9/ Source: LIMRA’s U.S. Individual Life Insurance Sales Trends,

Life Insurance Ownership Percentage of Households 2/9/ Source: LIMRA Household Trends in U.S. Life Insurance Ownership

Life Insurance Ownership Amount of Life Insurance 2/9/ Source: LIMRA Household Trends in U.S. Life Insurance Ownership

Annuity Trends Variable or Fixed Deferred and Immediate Tax-qualified available 2/9/

Annuity Sales Trends ($bil) 2/9/ Source: LIMRA U.S. Individual Annuity Yearbook & U.S. Individual Annuities

Variable Annuities Sales following stock market trends Guarantees on account value Guaranteed minimum death benefit Guaranteed living benefits Accumulation Withdrawal Income From insurer’s perspective: Risk management and hedging Asymmetrical risk Revenues derived from % assets When stocks decline, so do revenues collected 2/9/

Fixed Annuities – Deferred Guaranteed interest rates Spread from fixed account earnings rate Equity Indexed Growing market share 2/9/ Source: LIMRA U.S. Individual Annuity Yearbook & U.S. Individual Annuities

Fixed Annuities - Immediate Poor sales Opportunity for growth Mitigate post retirement uncertainties 2/9/

Question Which state was the first to forbid gender discrimination in insurance rate-setting? 2/9/

Answer 2/9/

On the Horizon Regulation Principle Based Approach Baby boomers LTC combination products Longevity insurance Pandemic Scenario Life Settlements Genetic Testing 2/9/

Katie Lenzini State Farm Life/Health Actuarial 2/9/