1. LIMRA 2017 Retirement Industry Conference
Session 1.4 – Product Development: Navigating the Fiduciary Fog
Timothy C. Pfeifer, FSA, MAAA
Pfeifer Advisory LLC
April 26, 2017

2. The New Environment (Regardless of Fiduciary Outcome)
Slower pace of product development
Lower and/or flatter sales compensation patterns
Significant consideration of whether non-qualified and qualified sales should be designed differently
Stakes have risen as to the importance of high value ancillary benefits
Increased sophistication of sales tools which analytically support value of insured retirement products

3. Variable Annuity Design – the most seriously impacted to date
Move to Fee-Based VAs
Key Areas
Administration (Life Insurers)
Advisory Fee (Tiered around 100 bps)
Source of Fees (Try to avoid pulling fees from VA; dedicated account)
M+E charge around 30 bps with 5 to 10 bps Admin Fee
No Surrender Charge
Average # of subaccounts is 75
While richness of GLWBs is declining, role after Fiduciary Rule growing
Opportunities to enhance legacy benefits
Structured VAs w/o GLBs may shine in this environment

4. The VA Landscape After Fiduciary Rule
Will lead to more insurers in Structured VA space
Search for structures that provide favorable tax treatment (i.e., capital gains treatment)
Some mild reduction in VA suppliers
Will not lead to new writers into the VA space
Composition of VA sales will move to 70% non-qualified

5. Fixed Indexed Annuities
Unlike VAs, FIAs have enjoyed a general surge in sales over the past five to ten years
FIA writers will continue to battle for PTE treatment of FIAs
A handful of life insurers have designed fee-only FIAs, but sales to date have been slow
Short-term, FIA sales will hit bumps regardless of DOL outcome, but not as severely as VAs

6. Fixed Indexed Annuities
Design Directions
Surrender charges still needed, unlike VAs, in order to enable life insurers to invest long
Fixed account still included, and modest number of indexed accounts
Ancillary benefits, specifically GLWBs and enhanced death benefits, help distinguish the FIA
High minimum premium and market value adjustment common features to juice products

7. Declared Rate Fixed Annuities (DRFAs)
Heightened level of design activity — Why? Avoidance of many of the challenges faced by VA/FIA regarding BICE
Most products are MYGAs, 3, 5, 7, and 10-year MYGAs with Market Value Adjustments and coterminous surrender charges
Front-end heaped commissions still payable
Most important, many more DRFAs being designed with GLWBs, GMABs, and other ancillary benefits
More FIA writers pursuing DRFAs

8. Other Product Implications
Deferred Income Annuities and SPIAs will see boost in sales, both qualified and non-qualified, particularly if interest rates rise.
Rising interest in Single Premium Life Insurance products, sold with accelerated underwriting and higher commissions—such products are targeted to customers who want a legacy benefit, not an income benefit.
Contingent Deferred Annuities—outlook unclear, a product oriented to planner/RIA market, so future could be bright.

9. Timothy C. Pfeifer, FSA, MAAA
Thank You
Timothy C. Pfeifer, FSA, MAAA
Pfeifer Advisory LLC