Annuity product development trends

1. © Oliver Wyman
​Annuity Product Development Trends
​Fixed Index Annuities & Registered Fixed Index Annuities
2017 Society of Actuaries Annual Meeting
Boston, October 18, 2017
Nicholas Carbo, FSA, MAAA

2. 1© Oliver Wyman
Agenda
1 FIA market update
2 RFIA market update

3. 2© Oliver Wyman
6.5
11.7 12.7
22.4
26.5
25.3 25.2
26.8
30.1
32.3 32.4
34.1
38.7
46.9
53.1
58.2
55.1
0
10
20
30
40
50
60
70
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Q2
Fixed indexed annuity sales trends (2001-2017)
2017 FIA sales are on track to drop 5% vs 2016 based on Q2 2017 sales
Source: Wink’s Sales & Market Report
1Q2 2017 sales were multiplied by two to get a 2017 annualized result
$Billions
YTD
Q2 20171
(Annualized)
15.7% CAGR (2001 -2016)

4. 3© Oliver Wyman
Recent acquisitions reshaped the FIA market
Acquirer/Seller (date)
Transaction type: IPO Japanese insurers Alternative buyers
2010 2011 2012 2013 2014 2015 2016 2017

5. 4© Oliver Wyman
Crediting methods and indices
Term end point and hybrid indices continue to be strong in the FIA market
Crediting methods (Q2 YTD 2017) Indices (Q2 YTD 2017)
Annual point-to-point crediting method and S&P 500 index are still the most common, but
“hybrid” and proprietary indices (e.g., target volatility and dynamic rebalancing indices) are
gaining significant traction
Source: Wink’s Sales & Market Report
Term End
Point (TEP),
14.3%
Annual Point-
to-Point (A-
PTP), 49.2%
Daily /
Monthly
Averaging
(AVG), 6.5%
Monthly
Point-to-Point
(M-PTP),
11.3%
Fixed, 14.4%
Other, 4.3%
S&P 500,
51.2%
NASDAQ-
100, 1.5%
Russell 2000,
1.0%
Other public
indices, 1.1%
Hybrid
Indices,
28.6%
Rainbow /
Multi-Index,
0.7%
Fixed, 14.4%
Other, 1.5%

6. 5© Oliver Wyman
FIA rider trends
GLWBs continue to be the main driver of sales, with other secondary
differentiating features
• “Stacked” rollups (e.g. 4%
+ account value
performance)
• Account value driving
income
• Income increases after
income start
• Rollups are compound /
simple / or absent (e.g.,
vary income by age /
duration)
• More income options
(flat, guaranteed increase
or index-linked increases)
• Offered for free or
additional charge (e.g. 10
bps)
• Typically doubles the
income for up to 5 years
if cannot perform 2 of 6
ADLs
• Offered with or without
GLWB (sometimes for an
additional charge)
• Maximum payout
• Payout periods / reduced
lump sum
GLWB
INDEX-LINKED
INCOME
GROWTH
OTHER
GLWB
STRUCTURES
NURSING
HOME INCOME
RIDERS
ENHANCED
DEATH
BENEFITS

7. 6© Oliver Wyman
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
December 2015
• Midland National
– MNL Prosper 5
Fee-based FIA product launches
Half of FIA writers have or plan to introduce a fee-based FIA in 2017,
according to LIMRA
August 2016
• Great American
– Index Protector 7
February 2017
• Allianz
– Retirement
Foundation ADV
Annuity
February 2017
• Lincoln
– Lincoln Core Capital
May 2017
• Pacific Life
– Pacific Index Advisory
July 2017
• Symetra
– Advisory Edge
– Income Advisory Edge
July 2017
• Nationwide
– Nationwide Summit

8. 7© Oliver Wyman
• The customer will likely receive a higher cap rate
• The surrender charges will likely be lower or eliminated
• The company will not be paying an upfront commission,
resulting in less strain to the insurance company
• Agents that only sell fee-based may be willing to look at
FIA as a choice for their customers
• The uncertainty around the DOL fiduciary rule may
increase demand for these products
Higher customer value
Less strain to insurer
Market opportunity
Benefits of fee-based FIAs
The removal of compensation from the product allows for benefits to the
customer and insurance company

9. 8© Oliver Wyman
Registered fixed index annuity product launches
Product launches are accelerating recently with top competitors launching
version 2.0 of their products
2010 2011 2012 2013 2014 2015 2016 2017
Oct 2010
• AXA introduces
Structured Capital
Strategies
May 2013
• Metlife introduces
Shield Level
Selector
August 2013
• CUNA introduces
Member’s Zone
Annuity
September 2013
• Allianz Life
introduces Index
Advantage
January 2015
• Voya introduces
Potential Plus
October 2015
• Voya closes
Potential Plus
August 2017
• Brighthouse
introduces Shield
Level Select
Access (Fee Only)
August 2016
• CUNA introduces
Member’s Horizon
Annuity
Feb 2017
• AXA Structured
Capital Strategies
Plus filed
In addition, Great West and Great
American have filed prospectuses for
RFIA products

10. 9© Oliver Wyman
Quarterly RFIA sales (2011Q3 – 2017Q1)
Annualized RFIA sales are approaching $8BN
1.0
2.0
0.0
1.5
0.5
QuarterlyPremium($BN)
+68%
2017
projected
201620152014201320122011
AXAAllianz Met
Source: Morningstar

11. 10© Oliver Wyman
Motivations for introducing RFIAs
Capital
requirements
• Diversification with VA
• Principles-based Market demand
• Growing sales
• Accumulation story
Innovation
• Higher cap rates
• New product segment
Risk
management
• Diversification with VA
• Low interest rates
D

12. 11© Oliver Wyman
Key takeaways
1 FIAs have become a mature market
2 Future of fee-based FIA
3 RFIA growth

13. Session Q&A