Trends in Life Insurance Products “What’s Now and What’s New?” Timothy C. Pfeifer, FSA Pfeifer Advisory LLC

2 The 4th Quarter of 2008 Put a Somber End to the Year Source: LIMRA

3 For All of 2008, Variable Life Sales Endured Biggest Wallop Source: LIMRA

4 Some Additional Thoughts on 2008 Life Sales Policy Counts Dropped 10% (Q4)/4% (YTD)

5 Some Additional Thoughts on 2008 Life Sales Policy Counts Dropped 10% (Q4)/4% (YTD) 2007 Sales Levels Created Tough Benchmark

6 Some Additional Thoughts on 2008 Life Sales Policy Counts Dropped 10% (Q4)/4% (YTD) 2007 Sales Levels Created Tough Benchmark Large Mutuals Boosted Market Share

7 Some Additional Thoughts on 2008 Life Sales Policy Counts Dropped 10% (Q4)/4% (YTD) 2007 Sales Levels Created Tough Benchmark Large Mutuals Boosted Market Share Is this really so bad?

8 Other Elements Steering the Life Insurance Business MortalityExperience continues to improve, but slope questions remain UnderwritingPractices evolving, particularly around older ages, teleunderwriting RegulationFederal versus state showdown, tax benefits under microscope Reserves/CapitalPBA slowly approaching realization – few LICs reflect now Life SettlementsReport of its death are pre-mature, but wounded Combo ProductsDevelopment activities continue, but sales slow to emerge ReinsuranceHunger for bold reinsurer action in midst of retrenchment

9 Traditional Whole Life Performing Well in Current Climate Reasons 1.Perceived stability of mutual life insurance companies 2.Competitive dividend scales 3.Strong sales forces 4.Effective use of riders Outlook 1.At least a 2-3 year period of rising market-share 2.Dividend scales must be lowered 3.Remains bread-and-butter of large mutuals, as long as tax advantages remain

10 Universal Life, Though Under Pressure, Continues to Lead the Life Story  Largest market share  Shadow accounts  Capital costs/LOCs  Older age focus (IA=66)  Lowest profit hurdle  Minority of market  Difficult interest rates  2001 CSO constraint  Relatively young IA  Sharpest sales hit  Slightly below ULSG  Strong story today  Capital efficient  IA = 62  Should see sales climb ULSG Cash Accumulation UL Current Assumption UL

11 Term Life has Proven to be Resilient, but Segments Face Challenges Twenty-year product key seller and rate dropping locus Dial-a-Term creates customization alternatives Reinsurers movements affecting long level periods Business arriving at end of level premium period Age extensions

12 Return of Premium Term has Uncertain Future in Light of AG CCC Reached 15-20% of term market Low lapse rates, mortality driven up ROP surcharge AG CCC mandates smoother grading to “endowment value” (1/1/09 for new filings) New product designs, remaining questions on reserves, 7702 Responses may include higher premiums, partial refunds, lower comp

13 What are the Expected Future Waves? 1.Term market share strengthens, sales dominated 2.Capital/LOC solutions created unlevel field 3.Some ULSG products disappear, watch CAUL 4.Resurrection of non-par WL 5.Favorable mortality patterns continue, but slow 6.Protection products jewel of acquisition deals 7.Profit targets drop to maintain share, cashflow PREDICTIONS