1. © 2010 The Actuarial Profession  www.actuaries.org.uk Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only CILA II seminar David Howell, Pacific Life Re Karin Brown, Prudential New Product Design Challenges 1 September 2010

2. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Agenda Solvency II – Product Development Impact Changes to Age 75 regulation - Product Development Impact 1 © 2010 The Actuarial Profession  www.actuaries.org.uk

3. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Solvency II - Product Development Impact The Theory Capital optimisation leading to increased return for insurers and better prices for consumers Use of (Partial) Internal Model in pricing –More capital efficient pricing –Recognition of an insurer’s individual capital position Pricing actuaries better understanding and bought into the risk management process Increased prices for any business generating significant reserves 2 © 2010 The Actuarial Profession  www.actuaries.org.uk

4. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Solvency II - Product Development Impact Current Reality Product development has virtually ground to a standstill as resources are diverted to Solvency II projects Most pricing (at least for protection) based on Solvency I rather than ICA and haven’t thought about Solvency II Diversification is either ignored or “a number supplied by Risk Management” Pricing actuaries don’t understand the comparatively simple models already in place Little impact on asset driven product pricing yet (surprisingly!) 3 © 2010 The Actuarial Profession  www.actuaries.org.uk

5. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Solvency II - Product Development Impact Implementation Risks Diversification –Marginal benefits re-used many times as volumes shift –Encourages companies to dabble beyond their expertise Increased complexity of capital modelling reduces rather than increases understanding Rough proxies used in pricing don’t reflect the sometimes quite geared nature of Solvency II requirements Risk concentration driven by Internal Model “wins” and/or disadvantages to using the Standard Model 4 © 2010 The Actuarial Profession  www.actuaries.org.uk

6. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Solvency II - Product Development Impact Practical Challenges When do we start using return on Solvency II capital? –Should these returns be lower and/or constant? –When will target capital stabilise? How do we translate complex models for the whole company into daily use tools for a single business unit? –Many methods exist for assigning diversification –Run times for pricing are materially shorter than valuation –When does “accuracy” become “spurious”? Will anyone buy the products that Solvency II drives us to sell? 5 © 2010 The Actuarial Profession  www.actuaries.org.uk

7. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Solvency II - Product Development Impact Diversification Methods Options (sample from a long list!): 1.Use the current aggregate diversification for all lines of business 2.Use the aggregate marginal diversification for all lines of business based on plan volumes 3.Use product specific inforce diversification on current volumes 4.Use product specific marginal diversification on plan volumes How sure are we that the projected level of diversification will be maintained through a 50 year product lifecycle? How confident are we that business plan volumes will emerge? Do the pricing actuaries understand the corporate drivers? Errors are magnified by the gearing effect discussed earlier 6 © 2010 The Actuarial Profession  www.actuaries.org.uk

8. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Solvency II - Product Development Impact Tangible Outcomes Higher capital requirements lead to: –Higher prices –More investment risk pushed back to consumers –Fewer or more expensive long term guarantees Resource conflicts will mean less product innovation in 2010 and 2011 Higher expense loadings and richer consultants! 7 © 2010 The Actuarial Profession  www.actuaries.org.uk

9. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Responding to Age 75 changes Challenges of Product Development Agenda Background Changes to Age 75 regulation Product development opportunities and challenges 8 © 2010 The Actuarial Profession  www.actuaries.org.uk

10. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Retirement Income market - 2009 Conventional annuities have largest share Few asset-backed annuities 9 © 2010 The Actuarial Profession  www.actuaries.org.uk Asset-backed Annuities £0.5bn Conventional Annuities £10.3bn Drawdown (incl. SIPPS) £2.7bn Source: ABI

11. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Choice between Annuity & Drawdown Annuity OR Certain to last for life –Single or Joint Known amount –Level –Fixed Increase –RPI / LPI Death benefit –Guarantee period –or Lump Sum 10 © 2010 The Actuarial Profession  www.actuaries.org.uk Drawdown / ASP Investment freedom –Potential for Growth –Investment Risk Higher potential starting income Longevity risk Death benefits –Clearer –Potentially higher

12. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Customer Objectives and Risk appetite 11 © 2010 The Actuarial Profession  www.actuaries.org.uk Level of certainty HighLow Conventional Annuities Asset-backed Annuities with smoothing or guarantees Drawdown with smoothing or guarantees Drawdown investment- linked

13. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Customer view – how long expect to need income Life expectancy increases over time – particularly in later years. This makes it difficult to plan. 12 © 2010 The Actuarial Profession  www.actuaries.org.uk Current Age Male age 65 in 2007 - 100% PNMA00 with 100% Medium cohort Life Expectancy as age increases

14. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Responding to Age 75 changes Challenges of Product Development Agenda Background Changes to Age 75 regulation Product development opportunities and challenges 13 © 2010 The Actuarial Profession  www.actuaries.org.uk

15. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only New rules for age 75 Consultation proposals Abolish compulsion to buy annuity before age 75 Annuity remains an option for all If stay in Unsecured Pension –Between 0% and 100% of “capped level” –Further taxed lump sum when have met “minimum income requirement” Tax on unused funds at death –Expected tax rate c. 55% –Does not apply if before age 75, and have not accessed pension fund –Designed to recover past tax relief 14 © 2010 The Actuarial Profession  www.actuaries.org.uk

16. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Capped level Purpose Capped level is designed to reduce risk of running out of funds during lifetime Current limit for Drawdown / ASP Consideration for new level Risk of outliving funds increases with age 5 year review period risk of investment falls increases with age 15 © 2010 The Actuarial Profession  www.actuaries.org.uk AgeLimit as % theoretical annuity Below 750% to 120% Above 7555% to 90% based on age 75

17. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Minimum Income Requirement Purpose Ensure do not exhaust pension savings and fall back on state Considerations Be payable for life Increase with cost of living –E.g. LPI / CPI or 2.5% fixed escalation Reflect uncertainty – be higher for younger people Highly uncertain Consultation mentions various figures: £132 to £423 per week Source: HM Treasury paper: Removing the requirement to annuities by age 75. 16 © 2010 The Actuarial Profession  www.actuaries.org.uk

18. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Responding to Age 75 changes Challenges of Product Development Agenda Background Changes to Age 75 regulation Product development opportunities and challenges 17 © 2010 The Actuarial Profession  www.actuaries.org.uk

19. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Product Development Opportunities and Challenges 18 © 2010 The Actuarial Profession  www.actuaries.org.uk Level of certainty HighLow Conventional Annuities Asset-backed Annuities with smoothing or guarantees Drawdown with smoothing or guarantees Drawdown investment- linked Enable to meet “minimum income requirement” Add money-back guarantees

20. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Product Development Opportunities and Challenges 19 © 2010 The Actuarial Profession  www.actuaries.org.uk Level of certainty HighLow Conventional Annuities Asset-backed Annuities with smoothing or guarantees Drawdown with smoothing or guarantees Drawdown investment- linked Enable to meet “minimum income requirement” Add money-back guarantees Add features and explanation to deal with increasing longevity Allow additional, taxed, lump sum

21. Colour palette for PowerPoint presentations Actuarial Bright Green R148 G166 B31 Actuarial Slate R32 G44 B52 * Secondary Olive Green R120 G162 B47 Secondary colour palette Primary colour palette Secondary Bottle Green R0 G147 B127 Secondary Turquoise R0 G138 B176 Secondary Aqua Blue R26 G160 B170 Secondary Pastel Green R126 G205 B195 Secondary Light Purple R123 G149 B174* Secondary Purple R97 G107 B156 Secondary Ecru R186 G163 B171 Secondary Yellow R215 G176 B18 Secondary Orange R213 G135 B43 Secondary Red R238 G52 B36 Secondary Rubine Red R226 G1 B119 *This colour reference is for screen presentations only Questions or comments? Expressions of individual views by members of The Actuarial Profession and its staff are encouraged. The views expressed in this presentation are those of the presenter. 20 © 2010 The Actuarial Profession  www.actuaries.org.uk