Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC April 13, 2010

2 Generating Assets Stable Sales in All Environments Generating Income Hedging Effects for Other Product Lines

3 Suppose you are handed a blank sheet of paper and are authorized to build the line in today’s environment:  Systems capabilities are available.  Creative products are not out of the question. “Develop an annuity portfolio which will enable our company to become a strong, sustaining player in the individual annuity marketplace, while achieving reasonable profitability.” Assumptions

A.Bond Yields quite steep B.Commercial Mortgages yielding 5.19% C.Equities grew 40% in last year, but caution persists D.Portfolios cash heavy, capacity exists E.Uncertainty about Indexed Annuities’ securities treatment F.Conservative investors and producers 4 A Rated: 2 yr – 1.89% 10 yr – 5.05% BBB Rated: 2 yr – 2.39% 10 yr – 5.49% A Rated: 2 yr – 1.89% 10 yr – 5.05% BBB Rated: 2 yr – 2.39% 10 yr – 5.49%

5 Deferred Annuities Immediate Annuities Fixed/Declared Variable with GMAB, GLWB Indexed with Annual PTP Modular MYGA Modular MYGA Interest-Indexed One Year RG Indexed, w/S&P, Annual Adj. CPI, or Interest- Indexed Kicker

 Investment wraps, or Stand-Alone Living Benefits, a contingent annuity providing a guarantee on hedgeable assets such as indexed mutual funds or passively managed ETFs.  Why? Although not a traditional annuity, such products open doors to large pools of invested assets and associated distribution and asset manager relationships. 6

A.Variable Immediate Annuities B.Longevity Insurance (maybe in another environment) C.LTC Rider (possibly on VA, not fixed) D.Complicated indexed return structures E.Straight one-year rate guarantee product F.GMIB on VA 7

8 Fixed/Declared Modular MYGA  Simple MVA Formula (non-security)  Levelized sales compensation  No ROP  5, 7, and 10-year IGPs, with auto renewal guarantee  5, 7, and 10-year IGPs, with auto renewal guarantee  $25,000 minimum (NQ), no policy fee

9 Interest Indexed One-Year Rate Guarantee  Simple MVA Formula (non-security)  Levelized sales compensation, if possible  Levelized sales compensation, if possible  Link credited rate to 5 or 10 year Treasuries, or to CD rates  Link credited rate to 5 or 10 year Treasuries, or to CD rates  Higher minimum ($50,000), with no policy fee  Higher minimum ($50,000), with no policy fee  Minimum credited rate equal to initial credited rate for SC period  Minimum credited rate equal to initial credited rate for SC period

10 Variable Deferred w/GMAB, GLWB  Heavily indexed-oriented subaccounts with a small number of third party managers and funds total  Heavily indexed-oriented subaccounts with a small number of third party managers and funds total  Minimal base GMDB  10 year GMAB and GLWB with rising %, step-ups and controls on ph activation  10 year GMAB and GLWB with rising %, step-ups and controls on ph activation  Graded M&E scale, emulates A share design  Graded M&E scale, emulates A share design

11 Indexed, w/Annual PTP  Registered and Non-Registered version, varying by guarantee and participation  Registered and Non-Registered version, varying by guarantee and participation  Introduce new index choices beyond S&P 500, including non- equity  Introduce new index choices beyond S&P 500, including non- equity  Option to give up mid-level return for sharing in “home-runs”  Option to give up mid-level return for sharing in “home-runs”  SCs not larger than 10 years, and minimum sizes of $25,000  SCs not larger than 10 years, and minimum sizes of $25,000

12 Indexed SPIA, with S&P Adjustment  Outstanding use of indexing, benefit can go up, not down  Outstanding use of indexing, benefit can go up, not down  Liquidity (partial) at defined internals, w/MVA  Liquidity (partial) at defined internals, w/MVA  Can couple with fixed benefit SPIA bucket  Can couple with fixed benefit SPIA bucket  % benefit trail compensation  % benefit trail compensation

13 CPI or Interest-Indexed SPIA  As with Indexed SPIA above, benefit can climb, but not fall  As with Indexed SPIA above, benefit can climb, but not fall  Must be priced for greater mortality anti-selection  Must be priced for greater mortality anti-selection  Limited liquidity at defined intervals, w/MVA  Limited liquidity at defined intervals, w/MVA  Initial benefit disadvantage may be greater in current interest rate environment for younger annuitants  Initial benefit disadvantage may be greater in current interest rate environment for younger annuitants

1.Variable Deferred Annuity 2.Modular MYGA 3.CPI SPIA 4.Indexed Deferred 5.Indexed Immediate 6.One-Year Rate Guarantee Deferred with Interest Index 7.Stand-Alone Living Benefit 14