1. 1 2016 sOA Life & Annuity Symposium Session 45: Life Product Trends Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC May 17, 2016

2. 2 Section 45 Life Product Trends Agenda Indexed Universal Life Term Life Insurance Par Whole Life 2017 CSO Underwriting Trends Other Topics

3. 3 Section 45 Life Product Trends Indexed Universal Life Continual Strong Growth and Increasing Market Share Gradual Expansion in Number of Underwriters Different Product Flavors, Accumulation, Income, DBG Interest rate levels have begun affecting caps Hedge programs are less precise than for FIAs Adoption of Actuarial Guideline 49 – 2 nd part

4. 4 Section 45 Life Product Trends Indexed Universal Life Mechanics of AG 49 Increase in persistency bonuses Defines maximum illustrated credited rate Re-configuration of loads and charges Specifies specific disclosure requirements More S&P 500 accounts with non-zero floors Limits participating loan leverage to 100bps Fewer index choices Guides Illustration Activity in DCS Product Impacts

5. 5 Section 45 Life Product Trends Term Life Not a “Price War,” but General Direction of Rates Down Implications of PBR- most carriers thought originally a slam dunk for Term – Now? Term Life is a Loss Leader for Most Non- Financing Carriers Use of Captives to Support Prices Slowed Considerably with AG48, but not Erased Today and in Future, Much Less Reason to Spike Premiums at End of LPP

6. 6 Section 45 Life Product Trends Term Life Future Issues for Term  Tax reserve treatment under PBR  Lower, levelized compensation as risk mitigator  Resurgence of ROP benefits?  Will fractionally lower premiums give way to process and other competitive focal points?

7. 7 Section 45 Life Product Trends Par Whole Life Continued Low Interest Rates Pressuring Dividend Scales Improved Mortality Results can Help only to a Degree A Couple of Carriers have Dusted off Older Par WL Designs Participating Products Continue to be Priced with Lower Hurdles Indexed Components to Dividend Scales

8. 8 Section 45 Life Product Trends 2017 CSO Developed by Society of Actuaries and American Academy of Actuaries, at the request of the NAIC  Also, 2015 VBT (with Relative Risk Tables)  A 2017 CSO Preferred Structure Table as well  Guaranteed Issue Version in the works 2017 CSO is a series of tables that split overall mortality into more granular components. Structure is similar to 2001 CSO as follows:  Terminal Age of 121  Tobacco-distinct tables begin at age 18  Non-tobacco tables reflect super-preferred, preferred, and residual standard  Tobacco tables reflect preferred and residual  25-year Select Period

9. 9 Section 45 Life Product Trends 2017 CSO  CRVM Reserves*  Net Premium Reserves*  Nonforfeiture Determination  Cap for UL COI charges * 2017 CSO Preferred Structure can be used Uses of 2017 CSO  Results in significantly lower CRVM reserves at ages 25-50 for Durations 5-40.  Results in consistently lower XXX reserves for LT20  But, substantially reduces Guideline Premiums and increases CVAT factors on permanent products Impact of 2017 CSO  Permitted for use on January 1, 2017  Three-year transition – mandatory by January 1, 2020  Implementation prior to January 1, 2020 can be on a product-by-product basis Adoption of 2017 CSO

10. 10 Section 45 Life Product Trends Underwriting Often, subject business limited to $250,000 to $500,000 face If clean responses to app questions and database checks, issue within 24-48 hours If responses to app questions aren’t clean, then additional more invasive underwriting Often limited to a specific cutoff age like 60 or 65 Database checks for MVR, MIB, and Rx Expert Underwriting Systems with Predictive Analytics The Name of the Game is Accelerated Underwriting Assumptions have been that mortality mirrors fully underwritten experience

11. 11 Section 45 Life Product Trends Other Topics Reinsurance Dynamics Levelized Commissions Variable UL Developments Guaranteed Issue Products

12. 12 Thank You Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC www.pfeiferadvisory.com