Annuity product trends

1. © Oliver Wyman
​Annuity Product Trends & Issues
2018 Retirement Industry Conference
Chicago, April 12, 2018
Nicholas Carbo, FSA, MAAA

2. 1© Oliver Wyman
Agenda
1 Annuity sales update
2 Changes in the market landscape
3 GLWB rider trends
4 Fixed annuity product trends
5 Fee-based FIA product trends
6 RFIA product trends

3. 2© Oliver Wyman
Industry annuity sales 2008 - 2017
RFIAs continue to see growth in a declining annuity market
Book value
SPIA
DIA
Marketriskforpolicyholder
Source: LIMRA
LowerHigher
201320122011201020092008 20172014 2015 2016
Variable
Registered indexed
MVA
Fixed indexed

4. 3© Oliver Wyman
Top 10 annuity writers
In 2008, top annuity writers were stock companies with significant VA sales
Rank Company Structure Sales % VA
1 MetLife Stock 20.0 70%
2 AIG Stock 19.2 43%
3 ING Foreign 16.2 86%
4 TIAA Non-profit 14.4 100%
5 Lincoln Stock 13.5 82%
6 AXA Stock 13.4 100%
7 John Hancock Foreign 11.3 84%
8 Prudential Stock 11.3 91%
9 New York Life Mutual 10.7 16%
10 Hartford Life Stock 10.7 74%
Source: LIMRA
2008 Top 10 annuity writers 2017 Top 10 annuity writers
Rank Company Structure Sales % VA
1 Jackson National Foreign 18.4 95%
2 AIG Stock 14.3 45%
3 New York Life Mutual 13.8 23%
4 TIAA Non-profit 12.0 100%
5 AXA Foreign 10.3 100%
6 Nationwide Mutual 10.0 49%
7 Allianz Foreign 9.9 25%
8 Lincoln Stock 9.1 78%
9 Pacific Life Mutual 6.5 47%
10 Prudential Stock 6.2 94%
The top 10 annuity writers continue to make up slightly more than 50% of the industry sales

5. 4© Oliver Wyman
Top 10 annuity writers
Top writers now include writers who sell less VAs than in 2008
Rank Company Structure Sales % VA
1 MetLife Stock 20.0 70%
2 AIG Stock 19.2 43%
3 ING Foreign 16.2 86%
4 TIAA Non-profit 14.4 100%
5 Lincoln Stock 13.5 82%
6 AXA Stock 13.4 100%
7 John Hancock Foreign 11.3 84%
8 Prudential Stock 11.3 91%
9 New York Life Mutual 10.7 16%
10 Hartford Life Stock 10.7 74%
Exits from the top 10 Entrants into top 10
Source: LIMRA
2008 Top 10 annuity writers 2017 Top 10 annuity writers
Rank Company Structure Sales % VA
1 Jackson National Foreign 18.4 95%
2 AIG Stock 14.3 45%
3 New York Life Mutual 13.8 23%
4 TIAA Non-profit 12.0 100%
5 AXA Foreign 10.3 100%
6 Nationwide Mutual 10.0 49%
7 Allianz Foreign 9.9 25%
8 Lincoln Stock 9.1 78%
9 Pacific Life Mutual 6.5 47%
10 Prudential Stock 6.2 94%

6. 5© Oliver Wyman
Banks
18%
Career
6%
B/Ds
21%
IMOs
55%
​Income annuities​Fixed annuities
​Fixed indexed annuitiesVariable annuities
Banks
10%
Career
25%
B/Ds
49%
IMOs
1%
Other
15%
Annuity products sales by distribution channel
Sales of annuity products varies across distribution channels
Banks
41%
Career
18%
B/Ds
26%
IMOs
13%
Other
2% Banks
11%
Career
39%
B/Ds
33%
IMOs
15%
Other
2%
Each annuity product has a majority of the sales in different distribution channels
Source: LIMRA

7. 6© Oliver Wyman
Recent acquisitions reshaped the FIA and VA markets
Acquirer/Seller (date)
Transaction type: IPO Japanese insurers Alternative buyers
2010 2011 2012 2013 2014 2015 2016 2017

8. 7© Oliver Wyman
68%
66%
60%
56%
53%
48%
41%
56%
61%
56%
60%
54% 53%
44%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2011 2012 2013 2014 2015 2016 2017
Variable annuity Fixed index annuity
GLWB election rates
GLWB election rates have been declining for VAs and FIAs
VA GLWB election rate declines are being caused by de-risking, whereas the FIA declines are related
to changes in distribution
Declining election rates
Source: LIMRA

9. 8© Oliver Wyman
VA GLWB rider richness
GLWB benefit richness has been decreasing since the crisis but has been
increasing slightly over the last year
0%
2%
4%
6%
8%
10%
12%
14%
Q22008
Q42008
Q22009
Q42009
Q22010
Q42010
Q22011
Q42011
Q22012
Q42012
Q22013
Q42013
Q22014
Q42014
Q22015
Q42015
Q22016
Q42016
Q22017
Q42017
Guaranteedincome(%ofinitialpremium)
Withdraw immediately Withdraw after 5 years
Withdraw after 10 years
Oliver Wyman VA GLWB guaranteed income index
Annual guaranteed income, as a % of initial premium
Q3 2008
Immediate 5.4%
5 years 7.4%
10 years 10.6%
Q4 2017
Immediate 4.4%
5 years 6.2%
10 years 8.5%
• Oliver Wyman has tracked the annual income
guaranteed by major variable annuity GLWB
products since 2008
• In 2008, the average policyholders can withdraw
over 10% of initial premiums each year after
deferring for 10 years
• By 2014, this amount had dropped to 8% as
legacy benefit parameters become
unsupportable given low interest rates
• Industry pricing practices have begun
converging in recent years towards using
market-consistent metrics
• Consequently, product changes have largely
been restricted to:
– Investment fund choices
– Market-linked features – e.g., VIX-indexed
fees – to reduce hedge cost

10. 9© Oliver Wyman
300
400
500
600
700
800
900
1,000
0 1 2 3 4 5 6 7 8 9 10
VA GLWB Income annuity life only Income annuity cash refund FIA GLWB
Guaranteedmonthlyincome
Deferral period
Guaranteed income rates by product and deferral
1.Income illustrated for a single premium of $100k
2. Rates based on common products in the marketplace
​60 year old male guaranteed monthly income by deferral period
FIA GLWB guaranteed
income exceeds
income annuity life only
FIA GLWB guaranteed income exceeds
income annuity cash refund
The longer the deferral period, the more competitive the FIA GLWB guaranteed
income becomes

11. 10© 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

12. 11© Oliver Wyman
0%
1%
2%
3%
4%
$0
$10
$20
$30
$40
$50
$60
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MVA Book value SPIA DIA 10 Yr treasury
Sales($B)
Fixed and income annuities
Fixed annuity sales are poised to increase given the increase in interest rates
Source: LIMRA

13. 12© Oliver Wyman
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018
December 2015
• Midland National
– MNL Prosper 5
Fee-based FIA product launches
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
March 2018
• Jackson National
– Market protector advisory

14. 13© 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

15. 14© 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 based)
August 2016
• CUNA introduces
Member’s Horizon
Annuity
Feb 2017
• AXA Structured
Capital Strategies
Plus filed
In addition Lincoln plans to launch in May 2018
2018
February 2018
• Great West
introduces Capital
Choice
March 2018
• Great American
introduces Index
Frontier 7

16. 15© 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

17. 16© Oliver Wyman
Key takeaways
1 FIA GLWB offers a strong income option
2 Increasing riskiness in the VA GLWB market
3 Fixed annuities are poised for a comeback
4 Future of fee-based annuities remains uncertain
5 RFIA gaining popularity

18. Session Q&A