1. Term Insurance Market Update
Kevin J. Borchert, CFA, FSA, MAAA
VP, Life Reinsurance Pricing

2. Agenda Environment and Market News Retail Market Reinsurance Market
Sales Results
Reinsurance placement
Rate trends
Reinsurance Market
Market
LOC
2001 CSO
State Adoption
Impact Illustration – Reinsurance example

3. Our Environment Volatile equity markets Low interest rates
Economic uncertainty / unemployment
Threat of terrorist activity
Retail market consolidation
Reinsurance market shrinking

4. Market News – M&A / Player Exits
AXA buys Mutual of NY ($1.5B) – 9/03
Manulife buys John Hancock ($11B) – 9/03
Allianz exits life reinsurance market – 9/03
A&L Re stops writing new business – 2/03
ERC exits life reinsurance market – 11/03
Scottish Re acquisition of ERC inforce ($.2B) – 10/03
Great West buys Canada Life ($7.1B) – 2/03

5. Market News – M&A / Player Exits
Sun Life and Clarica merge – 12/02
Safeco Life to sell Life and Investment business – 9/03
RGA buys Allianz life reinsurance unit ($.3B) – 9/03
Banc One acquires Zurich Life ($.5B)– 5/03
October 2003: Insurance industry sheds 2,000 jobs
Expect continued consolidation

6. Retail Market Sales Results
US Individual Life Sales – AM Best Aggregates & Averages
Slight gains year-over-year until 2001
2002: AM Best new sales up slightly; LIMRA up 14% thru Q3, 2002

7. Retail Market
What is your expected annual growth rate in term sales over the next 5 years?
Average consensus is 8-10% from market
Significant increase in 20 YT plans sales mix over the last 4 years (17% -> 35%)
Short duration and ART plan share has fallen off (45%-> 26%)
Return of premium plans gaining share

8. Retail Market Pricing
Top retail players pricing trends from > 2003:
Premium Change Min / Max
10 YT -4% 0% / -22%
15 YT -5% +3 / -18%
20 YT -5% +3 / -23%
30 YT -7% 0% / -30+%

9. Reinsurance Market Competitive Landscape Changing
financials
Ratings
Market Exits
Reinsurer exits and retro consolidation
LOC: Cost/ Capacity
Inforce Market
Increase in PC&D/ Private Label Solutions

10. Reinsurance Market Sales Results
US Life Reinsurance Recurring New Business
2002 volume almost seven times 1992 volume
22% CAGR

11. New Business Utilizing Reinsurance
US Life Reinsurance Recurring New Business as percent of Directly Written Business
Percent reinsured continues to grow
Growth rate slowed after 1998

12. Reinsurance Players Source: Munich Survey
*2002 ERC portfolio and recurring includes significant volume assumed from AUL
*2001 Ordinary portfolio amount includes $470,093 assumed from Lincoln Re
Source: Munich Survey

13. Reinsurance Players Mid 1990’s:
Nearly 30 companies active in US life reinsurance market.
Top 6 players have 60% of market share
Approximately 20 reinsurers had at least a 2% share accounting for 90% of market
By 2002: Reinsurance market tripled from 1995
Less than 20 active reinsurers.
Top 6 account for 75-80% of market share
Top 10 companies account for 90% of market

14. Why are firms exiting Life Reinsurance?
Financial distress
Lack of appropriate scale
Capital relief
Business considered non-core
=> Becoming difficult to diversify reinsurance pool

15. Reinsurance Concerns Letter of credit costs rising (30%) short term
LOC capacity requirements
Retro market consolidating
Retail market delaying product re-pricing
8+ reinsurance players from 5 years ago have either merged, exited, disappeared
Decreased credit quality / ratings for remaining reinsurance players

16. Reinsurer Ratings (As of 11/03)
Reinsurer: S&P Rating:
General Cologne Re AAA
Swiss Re AA
Transamerica Re AA
ING Re (US) AA
Hanover AA-
RGA Re AA-
Munich Re A+
SCOR BBB-
Scottish Re BBB-
Several no longer rated such as Gerling, Max Re,
&Optimum Re

17. Reinsurance Letter Of Credit Capacity Estimates
100 80 60 40 20

18. Reinsurance Opportunities
Inforce block pricing more rational
Increased activity in product consulting and private label solutions
Market share open for many pools due to financial difficulties and market participant exits
Limited capacity and reinsurance outlets
Upward pressure on rates due to LOC costs, LOC capacity, interest rates, RBC, etc.

19. Regulatory Issues Retail players planning 2001 plan introduction
2001 CSO
State Adoption (source: ACLI)
Adopted: NM (1/04), OK (1/04), TX (5/1/03), UT (7/1/03)
Proposed 1/1/04: AL, DE, ID, IN, IA, MD, MA, MD, NE, OH, PA, TN
Proposed 1/1/05: ND
Retail players planning 2001 plan introduction
Impact Example

20. 2001 CSO Example
Portfolio of 10/20/30 year level term with 60%/25%/15% sales mix
Reserve strain is reduced but not eliminated
2000
4000
6000
8000 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Economic Reserves
2001 CSO Reserves
1980 CSO Reserves

21. 2001 CSO Impact Reserve redundancy still significant
Industry financing capacity still an issue
Reserve pattern “hump”

22. 2001 CSO Pricing Impact
Overall portfolio allowance change minimal (<1%) using constant target ROI’s
Longer duration products result in more significant change
Reserve credit impact
Time value of cost savings
Preferred classes absorb larger declines in allowances
Improvement in nonsmoker mortality
Shorter periods of deficiency reserves under 2001 CSO