1. UK - Actuarial Advisory Firm of the Year UK - Pensions Advisor of the Year For sale: annuity One careful owner, full service history. Scott Eason, Partner Michael Henderson, Associate 9 March 2016

2. Presenters Scott Eason Partner and Head of Insurance Consulting Interest in secondary annuity market as a driver for product innovation Michael Henderson Associate, Insurance Consulting Interest in secondary annuity market as an asset class 2

3. Agenda 1.Background 2.Customers 3.Insurers 4.Investors 5.Conclusion 6.Questions 3

4. BACKGROUND 4

5. What the government is proposing and why 2014 Budget gave total freedom over how savers could withdraw pension money 2015 March Budget announced further pension freedoms to those already with an annuity DC benefits only (effectively) 5 Thousands of pensioners remain locked into 'paltry’ annuities. ‘Rescue me from my 24p annuity’ Webb: I want to ‘unwind’ annuities bought before the budget

6. What the government is proposing and why Allows individuals to “sell” (reassign) their annuities Whole annuities only Actually, key fact is that they are removing the tax disincentive 6

7. Timeline Announcement and consultation opened Consultation closed Consultation response Original implementation date New implementation date 7 March 2015 April 2016April 2017 June 2015Dec 2015 FCA consultation on consumer protection and administration charges Spring/Summer 2016 (Expected)

8. CUSTOMERS Why sell? Consumer protection 8

9. Why would a customer want to sell their annuity? Control assets and wealth Reconfigure income Lump sum Investment choice Rationalise small annuities Tax Ability to pass on wealth Now Later in life On death Profitable? Knowledge asymmetry Cash in excess value of annuity Guaranteed annuity rate Good time to sell? 9

10. How to help a customer decide? Understanding what they are giving up Understanding their own longevity Value for money Potential impact on state benefits Tax 10

11. Consumer protection Pension Wise Independent financial advice above a certain (as yet undefined) value Risk warnings will be used to highlight the dangers of selling an annuity, in a mirroring of the pensions freedoms protections Annuity purchasers and intermediaries (or at least those in the UK) will need to be FCA authorised Consent will be needed from dependants or other potential beneficiaries of the original annuity 11

12. INSURERS Opportunities Issues to overcome 12

13. Opportunities for insurers 13 Freedom products New customer Product swap Existing customer

14. Overcoming issues for existing annuity writers Costs Re-assignment cost Consumer protection Admin/system development Guaranteed Annuity Rates Death tracking Death register Simpler solutions Losing customer contact Cross-selling reduced Product swap? 14

15. INVESTORS Who and why? Challenges 15

16. Investors Why? fixed/predictable income inflation linked? low counterparty risk (FSCS?) partial longevity hedge Who? insurers / re-insurers pension funds hedge funds 16

17. Key challenges Knowledge asymmetry Mortality risk Matching Adjustment eligibility Market sizeAccess 17

18. Underwriting 18 Information asymmetry between buyers seller to buyer Industry-wide solution? Ability to price Risk mitigation reinsurance solutions? term assurance?

19. Asset options 19 Securitisation Re-shaping Longevity swap Fixed payment stream + = Senior Mezzanine Equity or subordinate Annuity stream

20. Current annuity market AUM £250bn + New annuity business ~ £10bn a year bulk purchase annuities Assuming 1% in years 1&2 0.2% thereafter 10% of new buyouts Potentially more… IFoA/YouGov survey – 33% would consider selling extend to DB? tertiary market Market size 20 Source: BW, HM Treasury

21. US secondary annuity market 21 Primarily fixed term$600m-$1bn worth traded per annumSpreads 2-3% above US TreasuriesInstitutional & retail investorsIntermediaries act as market makers

22. Access Tertiary market Allows the collation of single annuities to pass on in bulk Firms already being set up to do this Central bureau AnnuitySupermarket.com Favoured by many Other intermediaries Competition may increase efficiency/size? 22

23. Other investor challenges Asset valuationCredit rating LiquidityCosts / Yield 23

24. Insurer buy-back Indirectly only Purchasing a perfectly hedging asset Capital advantage? Knowledge advantage? Underwriting ability? Need liquidityMA eligibility 24

25. Pricing What spread will investors need? Risks Credit Valuation Liquidity Up-front costs Comparison to similar assets Corporates Private debt How does that compare to “value”? Likely to be significant gap Needs to be another reason to sell 25

26. CONCLUSION Viable market? 26

27. What might the market look like? 27 Central bureau or other intermediary Consumer IFA Pension Wise Investor Asset manager Underwriter / pricing Tertiary market

28. What is needed to succeed? Ultimately, it will come down to price 28 Consumers Straightforward process Advice / protection Products Value? Insurers Charges Death notification Compulsory? Investors Yield Risk management Market size Access

29. 29 Questions Comments

30. Regulatory Information The information in this presentation is based on our understanding of current taxation law, proposed legislation and HM Revenue & Customs practice, which may be subject to future variation. This presentation is not intended to provide and must not be construed as regulated investment advice. Returns are not guaranteed and the value of investments may go down as well as up. Barnett Waddingham LLP is a limited liability partnership registered in England and Wales. Registered Number OC307678. Registered Office: Cheapside House, 138 Cheapside, London, EC2V 6BW Barnett Waddingham LLP is authorised and regulated by the Financial Conduct Authority and is licensed by the Institute and Faculty of Actuaries for a range of investment business activities. 30