The persistent low interest rate environment has created numerous downstream impacts on VA writers. Please join me on Monday November 16, 2015 at the EBIG Conference in Chicago at 3:30 PM CST as I discuss the impact of the low interest rate environment on VA writers and how VA writers have responded to the low interest rate environment. I will also discuss where I feel the VA industry in headed, given the overall regulatory uncertainty.

1. VARIABLE ANNUITY (“VA”) PRODUCTS:
RESPONDING TO A LOW INTEREST
RATE ENVIRONMENT
11th Annual Equity Based Insurance Guarantee Conference (Chicago)
Session 3A: November 16, 2015 (1530 – 1700 hours)
Amit Ayer

2. Agenda
 VA landscape
 Impacts to / Responses of VA writers to low interest rate environment
– New business
– Product
– Profitability
– Reinsurance markets
– Divestiture strategies
– Alternative products
 Questions and answers
2

3. VA
LANDSCAPE

4. Industry consolidation continues, as ten VA
writers accounted for ~80% of sales in 2014
Market share of sales for top 10 VA writers
4
DAC
GAAP
value of
guarantee
fees
SOP 03-01
guarantees
Source: JP Morgan Market Share Bible Vol. LXIV
17.0%
9.6% 9.4% 9.2%
7.4% 7.3%
6.8%
4.7% 4.5%
3.3%
Jackson
National Life
Lincoln
National
AIG
SunAmerica
TIAA-CREF Aegon /
Transamerica
Prudential
Financial
AXA
Financial
MetLife Nationwide
Financial
Pacific Life
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
YE2014SalesMarketShare
Commentary
• VA sales are projected to drop 1% in
2015 following a 4% decline in 2014
• Lincoln’s market share is driven by
sales of ChoicePlus Assurance
• Jackson National continues to
dominate VA sales
– Perspective (B and L shares)
– Elite Access (no living benefit
rider)
No living
benefits

5. Market share in VA business has shifted
significantly as interest rates continue to
remain depressed
Historical sales market share of top VA writers
5
Commentary
• In 2011, MET gained significant share
as weaker competitors retrenched
• PRU’s share declined in 2011 due to
price hikes and benefit cuts; this trend
reversed in 2012 as PRU regained
share and MET’s sales plummeted due
to management efforts to limit volumes
• In 2015, MET is projected to gain
market share and PRU is projected to
continue to lose market share
• Jackson National’s market share
continues to increase, with Lifeguard
Freedom Flex becoming best selling
GLWB product in market
• Lincoln has been more aggressively
selling VAs since 2013, driving up
market share
DAC
GAAP
value of
guarantee
fees
SOP 03-01
guarantees
10.7% 11.4%
13.8% 14.8% 17.0%
4.5% 5.2%
6.1%
8.6%
9.4%
6.5%
6.1%
7.3%
10.1%
9.6%
2.8%
3.4%
3.7%
6.0%
7.4%
15.8% 13.2%
13.9%
8.1%
7.3%13.4%
18.5%
12.3% 7.5%
4.7%
0%
10%
20%
30%
40%
50%
60%
2010 2011 2012 2013 2014
Salesmarketshare
Jackson National Life AIG Am Gen/VALIC Lincoln National
Aegon/Transamerica Prudential Financial MetLife
Source: JP Morgan Market Share Bible Vol. LXIV

6. VA AUM forecasted to grow 6-7% annually
in the long run
AUM market share of top living
benefit VA writers (3/31/15)
6
Commentary
• AUM growth in the VA business is heavily dependent
on equity market movements but tends to be less
volatile due to allocations to fixed income investments
• At 3/31/15, 72% of VA AUM was allocated to equity
and balanced funds (similar to the high point level of
72% reached in 3Q07), with the remaining 28% in
fixed income and cash
DAC
GAAP
value of
guarantee
fees
SOP 03-01
guarantees
Source: JP Morgan Market Share Bible Vol. LXIV
9.1%
7.9%
7.0%
6.1%
5.5% 5.3%
3.9%
3.5% 3.5%
MetLife Prudential
Financial
Jackson
National
Lincoln
National
AXA Financial AIG
SunAmerica
Ameriprise
Financial
Voya / Reliastar Aegon /
Transamerica
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
AUMMarketShareofAssets(3/31/15)
• Although large fixed income allocations
help reduce volatility, it becomes more
challenging for assets to grow at
guaranteed levels in a prolonged low rate
environment

7. IMPACTS TO / RESPONSES OF
VA WRITERS TO LOW INTEREST
RATE ENVIRONMENT

8. Executive Summary
Impacts to and responses of VA writers to
low interest rate environment
Dimension Impact of low interest rate environment VA writer response
Impact of
response
A New
business
Maintaining same new business volumes becomes onerous on
balance sheet
Curb distribution of VA sales until interest rates mean
revert to long term levels
Expectation of rising interest rates has allowed for VA writers
to consider developing riskier products at same prices
Maintain “rational” products in market, with
appropriate equilibrium between benefits and fees
B Product
De-risking of VA product designs, benefits and fees due to
persistent low interest rate environment
Fundamental VA product de-risking mechanisms
have been implemented into current products
Greater consistency in product features over last 2-3
years
Highlights lack of a stable relationship between reserves and
capital
NAIC is investigating changes to harmonize statutory
framework for VA products
TBD
C Profitability
Product de-risking has increased GAAP ROEs to low to mid
teen levels for new business
VA writers are not appropriately risk-adjusting new
business ROEs, since cost of hedging is not
incorporated in net income
DReinsurance
markets
Higher new business margins from de-risked products have
opened up VA reinsurance markets
VA writers are actively engaged in VA reinsurance
deals
E Divestiture
strategies
In conjunction with regulatory uncertainty, low interest rates
have helped drive divestiture strategies of VA blocks
Recent M&A activity around VA blocks have involved
foreign acquirers
Provide compensation to policyholder in exchange
for product (exchange offer)
F Alternative
products
Decelerate VA sales and pivot distribution network to
alternative products
Increased sales of FIA w/ GLWB riders and Deferred
Income Annuities
Significant impact to VA writer Insignificant impact to VA writer
8

9. New business
IMPACT 1: Maintaining same new business
volumes becomes onerous on balance sheet
Low interest rate environment causes significant impacts to balance sheet
Dimension
Impact of Low Interest Rate
Environment
Downstream Impacts
Balance
Sheet Impact
1
Statutory
Reserves /
Capital
• While statutory reserve levels are relatively
interest rate insensitive, lower rates will increase
volatility of required capital requirement
• Higher cost of capital
• Limited opportunities to earn returns on other
products
2 Claims
• Increase in GAAP reserves (FAS 157) from
claims being discounted at lower rates
• Lower net income
3 Cost of hedging
• Higher cost of hedging as options become more
expensive
• Reduces incentive to fully hedge interest rates
4
Assets
supporting fixed
funds
• Increased difficulty in supporting rates in fixed
account due to spread compression in general
account
• Disintermediation risk
5 Profitability
• Lower ROEs due to lower net income from higher
reserve levels
• Opportunity cost of earning higher ROEs on
other products
A B C D E F
Significant impact to balance sheet Insignificant impact to balance sheet
9

10. New business
RESPONSE 1: Curb distribution of VA sales
until interest rates mean revert to long term
levels (1/2)
VA Sales vs. 10-year Treasury rate
10
Commentary
• Weak empirical correlation between
VA sales and interest rates
• While not primary driver, low
interest rate environment has
contributed to drop in VA sales
(supply-side effect)
• Onerous impacts of low interest
rate environment has caused
conscious de-emphasis on
distribution of VA products
• VA sales expected to marginally
decrease (year-over-year) in 2015,
as rates have fallen further
DAC
GAAP
value of
guarantee
fees
SOP 03-01
guarantees
Industry sales have dropped steadily
over 2012 – 2014 and are expected to
fall marginally (1%) in 2015
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0
50
100
150
200
VASales($bn)
Total Industry Sales ($BN) (left) 10-year Treasury (mid-year) (right)
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
YOYsaleschange
A B C D E F

11. New business
RESPONSE 1: Curb distribution of VA
sales until interest rates mean revert to long
term levels (2/2)
U.S. 10-year Treasury Security Yield: A Long
Downward Trend, 1990 – 2015*
11
Commentary
• We have been in a low interest rate
environment for the last decade
• Interest rates have not recovered to
pre-financial crisis levels
• Artificially low interest rate
environment expected to continue
through 2015 and 2016DAC
GAAP
value of
guarantee
fees
SOP 03-01
guarantees
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Yields on 10-Year U.S. Treasury
Notes have been essentially
below 5% for a full decade U.S. Treasury
yields plunged to
historical lows in
2013, rebounded,
and then fell
again
Recession
* Monthly, constant maturity, nominal rates, through September 2015
Sources: Federal Reserve Bank at http://federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates)
A B C D E F

12. New business
IMPACT 2: Expectation of rising interest
rates has allowed VA writers to consider
developing riskier products at same prices
12
U.S. interest rate forecast: 2015 - 2021 Commentary
 “Normalization” of interest rates is
unlikely until 2018 or later, a decade
after onset of global financial crisis
 Impact of higher expectation of
interest rates on VA products:
– Lower volatility in required capital /
cost of capital
– Lower present value of projected
claims
– Lower cost of interest rate hedges
– Stronger risk-adjusted ROEs
• VA writers “betting” on rising interest
rates in 2016 have considered
developing more generous products
at same prices to increase sales
and improve market share
2.3
2.9
3.9
4.2 4.3 4.3 4.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
15F 16F 17F 18F 19F 20F 21F
Yield(%)
Forecast Year
Sources: Blue Chip Economic Indicators
The end of the Fed’s Quantitative
Easing program in 2014 and a
stronger economy have yet to
push longer-term yields higher
A B C D E F

13. New business
RESPONSE 2: Maintain “rational” products
in market, with appropriate equilibrium
between benefits and fees
Benefit features vs. fees of top selling
B-share GLWBs
Commentary
 While outliers exist, top selling GLWBs
generally maintain a correlation
between benefit richness and fees
 All GLWBs are not “de-risked,” in
particular JNL’s LifeGuard Freedom
Flex, which affords wide array of
investment options and option of a 7%
roll-up rate
 Of top 25 GLWB’s, all offer a roll-up
rate, exception is Pacific Life’s Core
Income Advantage Select rider
 5% lifetime withdrawal rate starting at
age 65 is industry norm
 Annual step-up is industry norm;
exception is Prudential’s Highest Daily
Lifetime Income 3.0 rider
 JNL, PRU, MET and LNC have been
active in the L-share market, but B-
share design is expected to be
dominant design0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
0 1 2 3 4 5
TotalVAFee(M&E+Rider+Fund)
Benefit Richness
Jackson
National –
Perspective II
– LifeGuard
Freedom Flex1
Prudential Financial –
Premier VA – Defined
Income – Benefit
Pacific Life – Pacific
Choice – Core Income
Advantage Select
Lincoln National –
American Legacy –
Lifetime Income
Advantage 2.0
Lincoln National –
ChoicePlus Assurance
– Lifetime Income
Advantage 2.0
Prudential Financial –
Premier VA – Highest Daily
Lifetime Income 3.0
TransAmerica –
Variable Annuity –
Retirement Income
Choice 1.6
Nationwide Financial
– Destination 2.0 –
Lifetime Income
Rider
Benefit richness is composite score based on weighted average of following variables:
• Withdrawal rates by age
• Roll-up rate
• Roll-up length
• Step-up rate / frequency
• Asset allocation criteria
• Fund selection / fund types
1. Based on 6% roll-up option (5%, 6%, or 7% options offered)
A B C D E F
13

14. Product
IMPACT 1: De-risking of VA product designs,
benefits and fees due to persistent low
interest rate environment
14
Dimension Impact of Low Interest Rate Environment Product de-risking mitigation
1
Statutory
Reserves /
Capital
• While statutory reserve levels are relatively interest rate
insensitive, lower rates will increase volatility of required
capital requirement
• Higher fees and lower claims will decrease projected
Accumulated Deficiencies, lowering statutory reserve and
Total Asset Requirement levels
2 Claims
• Increase in GAAP reserves (FAS 157) from claims being
discounted at lower rates
• Reduced benefit and higher fees will reduce GAAP reserve
• Prescribed allocation to volatility managed funds will mitigate
volatility in GAAP reserve
3 Cost of
hedging
• Higher cost of hedging as options become more
expensive
• NA
4
Assets
supporting
fixed funds
• Increased difficulty in supporting rates in fixed account
due to spread compression in general account
• NA
5 Profitability
• Lower ROEs due to lower net income from higher reserve
levels
• Streamlining benefits and fees generates higher ROEs
A B C D E F
VA product de-risking cannot fully mitigate impact of low interest rate environment

15. Product
RESPONSE 1a: Fundamental VA product
de-risking measures have been
implemented into current products (1/2)
De-risking measures Description
1 Higher fees • Increase M&E and rider fees of product
2 Lower benefits
• Reduce roll-up rate
• Move to simple interest for roll-up rate
• Eliminate or reduce frequency of reset feature
• Reduce guaranteed withdrawal rates at attained ages
3 Stricter asset allocation limits • Higher mandatory minimum allocation to fixed / balanced accounts
4 Mandated automatic subaccount
rebalancing
• Reduces ability of policyholders to “time the market”
5 Reduction in fund options • Restriction in number of equity funds available in sub-accounts
6 Increased use of index funds • Increased use of “tracker” equity and bond funds in subaccounts
7 Shifting of hedging costs to
customers
• Partial shifting of hedging costs to customers by requiring allocations to funds that embed
interest rate hedging within fund
8 Augmented hedging strategies
• Increased use of volatility hedging
• Adding macro hedges to protect against steep interest rate drops
A B C D E F
15

16. Product
RESPONSE 1a: Fundamental VA product
de-risking measures have been
implemented into current products (2/2)
16
Macro view of VA product de-risking
(pre-crisis and post-crisis)
Commentary
 Most insurers have raised fees and
lowered guarantee levels in recent
years to mitigate the impact of low
interest rates
 While a handful of companies
(Aegon, MetLife) have reduced fees
and introduced more generous
benefits recently, overall
terms/conditions remain rational and
prices/guarantee levels offered
currently are significantly more
conservative than those offered prior
to the financial crisis
 Historically, price competition in the
VA business has been pro-cyclical,
more rational following market
downturns and aggressive after
recoveries
Prior
Feature
(2008)
Fee Accum.
With-
drawal
Current
Feature
Fee Accum.
With-
drawal
AMP SecureSource 0.65% NA 6.0% SecureSource4 1.25% 6% 3.0%-6.0%
AXA GWB for Life 0.65% 7.0%
4.0%-
7.0%
GMIB 1.15%
4.0%-
8.0%
4.0%-8.0%
HIG
Lifetime
Income Builder
Selects
0.55% NA
5.0%-
8.0%
Not actively selling VAs
LNC
i4LIFE
Advantage
0.40%
3.0%-
6.0%
NA
Lifetime Income
Advantage 2.0
1.05% 5%
3.5%-
5.0%
MFC
Principal Plus
for Life
0.40% 5.0% 5.0% Not actively selling VAs
MET GMIB Plus 0.80% 6.0% 6.0% Flexchoice 1.20% 5% 4.0-5.75%
NFS L-Inc 0.70% 7.0%
4.0%-
7.0%
7% Lifetime
Income Rider
1.20% 7% 3.0%-6.0%
PL SecurePay 0.70% 7.0% 7.0% SecurePay 5 1.20% 5% 5.0%
PRU HD Lifetime 7 0.60% 7.0%
5.0%-
8.0%
HD Lifetime 3.0
rider
1.00% 5% 2.9%-5.9%
Source: JP Morgan Market Share Bible Vol. LXIV
A B C D E F

17. Product
RESPONSE 1b: Greater consistency in
product features over last 2-3 years
17
2013
Rank
2014
Rank
Company Contract
2013
Mkt. Sh.
2014
Mkt. Sh.
2 2 Jackson National Perspective II 7.0% 7.6%
4 3 Jackson National Perspective L 3.6% 4.0%
NA 5 Prudential
Financial
Premier B series NA 3.4%
5 6 Ameriprise RVS RAVA5
Advantage
2.8% 2.8%
12 7 AXA Equitable Ret. Cornerstone
13.0 (B)
1.8% 2.6%
6 8 AIG/VALIC Portfolio Director 2.7% 2.6%
9 9 AIG/AmGen Polaris Platinum III 2.1% 2.6%
13 10 Nationwide Destination 2.0 (B) 1.8% 2.3%
20 11 Transamerica TA Variable Annuity
B
1.1% 2.2%
11 12 Thrivent Flexible Prem. DVA
2005
1.9% 2.1%
Market share of sales for top selling living
benefit variable annuity contracts in 20141
Commentary
 Product features of most popular VA
products have stayed relatively
consistent through last 2-3 years, with
exception of marginal increase in fees
for some products since 2012
 Consistency in product features
evidenced by relatively stable market
share of top selling living benefit
products
1. TIAA-CREF’s Retirement & Supplemental Retirement and JNL’s Elite Access both do not have living benefits and were excluded from list
A B C D E F

18. Illustrative VA portfolio
Reserves
Calculated as the larger of:
• Greatest pre-tax deficit in the worst
30% of scenarios in a stochastic
simulation
• Results from the “AG 43 Standard
Scenario,” which prescribes a market
decline and actuarial assumptions
– Differs from C3P2 Standard
Scenario for TAR
Reserves
Required
Capital
Total Asset Requirement (TAR)
Calculated as the larger of:
• Greatest post-tax deficit in the
worst 10%
of scenarios in a stochastic
simulation
• Results from the “C3P2
Standard Scenario,” which
prescribes a market decline
and actuarial assumptions
– Differs from AG 43 Standard
Scenario
Product
IMPACT 2: Highlights lack of a stable
relationship between reserves and capital
18
Volatility in required capital exacerbated by low interest rate environment
• Different frameworks used to calculate TAR and reserves
• Interest rate sensitivity of TAR and reserves is not consistent (reserves are largely insensitive to
interest rate changes)
• Impact of differential sensitivity magnified in low rate environment
A B C D E F
Boundary between reserves
and capital

19. Product
RESPONSE 2: NAIC is investigating
changes to harmonize statutory framework
for VA products
19
• The NAIC enacted its C3 Phase II (“C3P2”) standard for capital charges in 2006, followed by AG43 in 2009
• Managing competing objectives of GAAP and statutory frameworks in low interest rate
environment has been a driver for the use of captives for VA products
• Recognizing the challenges posed by statutory capital management, NAIC commissioners have
pragmatically tried to accommodate the use of captives, while upholding sound standards of prudential
supervision
• The NAIC commissioned an initiative to identify changes to the statutory framework that will mitigate or
remove the motivation for insurers to use captive reinsurance and provide an incentive to recapture
exposures into the primary entities
A B C D E F

20. Profitability
IMPACT: Product de-risking has increased
GAAP ROEs to low to mid-teen levels for
new business
20
VA GAAP ROE – In-force vs. new business Commentary
• Product de-risking due to low
interest rate levels has created
healthier margins for new business
• Common to see reported GAAP
ROEs in low to mid teens (%) for
new business, largely driven by de-
risked product features and
increasing equity markets
New business ROEs
significantly higher
than in-force ROEs
due to de-risking
strategies
5%
8%
0%
2%
4%
6%
8%
10%
12%
14%
GAAP ROE in-force GAAP ROE new business
VAGAAPROE
A B C D E F
Illustrative

21. Profitability
RESPONSE: VA writers are not appropriately
risk-adjusting new business ROEs, since cost
of hedging is not incorporated in net income
21
5%
-3%
1%
8%
11%
0%
2%
4%
6%
8%
10%
12%
14%
GAAP ROE in-
force
GAAP ROE new
business
Risk-Adjusted
GAAP ROE
Risk-Adjusted
GAAP ROE
(reflecting
lower Rho
hedge target)
Final risk-
adjusted GAAP
ROE new
business
VAGAAPROE
VA GAAP ROE Waterfall
New business
ROEs
significantly
higher than in-
force ROEs due
to de-risking
Cost of interest rate
hedging is not
reflected in net
income, thus
overstating risk-
adjusted return
Many companies
have lowered Rho
hedging target in
current interest
rate environment,
due to cost
Commentary
• Interest rate hedging is more
expensive when rates are low
– Put options are more expensive
– Pay-fixed / receive-floating swaps
lose market value
– Difference between real-world and
risk neutral rates becomes larger
(one approximation for cost of
hedging)
• Net income used in calculating ROE
does not reflect cost of hedging; thus
reported ROEs do not provide a risk-
adjusted return
• Risk adjusting reported ROEs
reduces ROEs by 2-3%
• VA writers may opt to significantly
reduce or eliminate interest rate
hedging if rates fall further
A B C D E F
Illustrative

22. Reinsurance markets
IMPACT: Higher new business margins from
de-risked products have opened up VA
reinsurance markets (1/2)
22
A B C D E F
Markets Description
1 Reinsurers
•Highly rated reinsurers are increasingly inquisitive about VA risks due to following reasons:
– Improved transparency around policyholder behavior frameworks
– Improved transparency around GAAP/IFRS profitability targets
– Industry emphasis on “sustainable products” with healthy risk-adjusted profitability margins
– Increased potential for diversification
2 Banks
•High margins of new business are primary driver of VA rider coinsurance deals
– Union Hamilton / Wells Fargo are largest reinsurer of VA riders
– Other banks are entering market of fully coinsuring VA rider risks (both capital market and actuarial
risks)
– 4-5 banks in market are capable of coinsuring VA rider risks
– Several VA reinsurance deals are currently in the works

23. Reinsurance markets
IMPACT: Higher new business margins from
de-risked products have opened up VA
reinsurance markets (2/2)
Time range Supply Description Major products
Complexity of
reinsurance
1 1990s
• GMDB reinsurance was commonplace (CIGNA was one
of original GMDB reinsurers)
GMDB
2 2000-2002
• VA reinsurance dried up with “dot com” recession, as
reinsurance premiums increased drastically
GMDB, GMIB
3 2006-2007
• Reinsurers entered market as equity markets were rising
and interest rates remained at relatively high levels
GMIB, GLWB
4 2008 - 2009
• Reinsurance market ceased to exist during global
financial crisis
GMIB, GLWB
5 2009 - 2014 • Reinsurance market grew slowly post financial crisis GMDB, GMIB, GLWB
6 Present
• Banks and newer reinsurers have expressed interest in
both capital market risks and actuarial risks in VAs
• Higher margins from new business has increased the
supply of reinsurers to (1) hedge capital market risk and /
or (2) coinsure all the risks in VA products
GMDB, GMIB, GLWB
A B C D E F
23

24. Reinsurance markets
RESPONSE: VA writers are actively
engaged in reinsurance deals (1/3)
24
Structure
Risks
covered
Pros to cedant Cons to cedant
Examples in
marketplace
1 Quota share of
rider only
All VA risks
(actuarial and
capital market)
• Higher profitability metrics (GAAP
ROE / Statutory IRR) since all (or
large portion) of M&E fee is retained,
while riskiest part of contract (rider) is
reinsured
• De-risking of balance sheet
• If rider fee does not have
sufficient margins/PADs,
reinsurers will have difficulty
meeting profitability targets
• No expense allowance to help
fund acquisition expenses /
commissions, since expenses
and commissions are normally
allocated to M&E fee
Union Hamilton (Wells
Fargo)
2
Capital market
reinsurance with
retrocession of
actuarial risk
All VA risks
(actuarial and
capital market)
• Bi-furcation of capital market
reinsurance with actuarial
reinsurance via retrocessionaire
• Reinsurance premium pricing
is typically not as efficient as
full risk transfer / quota share
option
Majority of banks entering VA
reinsurance market
Most common industry practice
A B C D E F

25. Reinsurance markets
RESPONSE: VA writers are actively
engaged in reinsurance deals (2/3)
25
Illustrative
Cedant –
General
Account
Cedant –
Separate
Account
Reinsurer
x% GLWB claims
Registered
Investment
Company
Revenue sharing
GLWB
claims
Admin/
Surrender
charges
Annual Reinsurance Premium
x% of rider fee
Separate account
reinsurance reserve
• Modified coinsurance
basis
Presence of trust
is negotiated
between cedant
and reinsurer
Structured / Dynamic Hedging
Distribution
Commissions
Single
Premium
M&E
Fee
Rider
Fee
12b-1 fees
Policyholders
A B C D E F
Key considerations
• Use of intermediary
reinsurer is necessary if
reinsurer is not legal
insurance / reinsurance
entity (e.g., investment
bank)
• 50% - 75% coinsurance
seen in industry

26. Reins
Premium
Reins
Claims
ModCo
Reinsurance markets
RESPONSE: VA writers are actively
engaged in reinsurance deals (3/3)
26
Ins Co Insurance
Captive
Regulation 114 Trust:
• held on-shore by
cedant due to
agreement being
ModCo
Reinsurer
Captive
Reinsurer
Retrocession
Definition of “risk”
transferred
All underlying
liabilities transferred
to captive
Reinsurance of
actuarial risks
A B C D E F
Illustrative

27. Increased
rating agency
scrutiny
Impact capital
requirements /
management
Additional capital
requirements
Lower ROE
Regulatory
ImplicationsNew capital rule
uncertainty
Impact dividends/
share buybacks
Increased
regulation
Impact M&A
activity
New
regulations
Reduce
investment
returns
27
Divestiture strategies
IMPACT: In conjunction with regulatory
uncertainty, low interest rates have helped
drive divestiture strategies of VA blocks
A B C D E F
Commentary
• Uncertainty in regulatory
implications around capital
levels has impact on M&A
activity
• VAs are considered “non-
core” business line by certain
regulatory bodies
• Low interest rate
environment is just one of
the drivers of M&A activity
Pertains to low interest rate environment

28. Divestiture strategies
RESPONSE 1: Recent M&A activity around
VA blocks have involved foreign acquirers
Source: SNL Financial, Company Filings, J.P. Morgan Research
Date Announced Target Name
Acquiror
Name
Value ($M) Price / Book Value
Aug-15 3,730 1.56x
Jun-14 5,580 1.29x
Sep-13 650 1.24x
Dec-12 1,550 NA
Dec-12 1,350 0.62x
28
A B C D E F
Commentary
• Japanese acquirers have dominated M&A market over last 18 months
• Even lower interest rate environment in Japan
• Lack of alternative investment vehicles in Japan for capital
• Difficulty in growing reserve / capital base due to declining population in Japan
• Diversification into US markets / demographics
• Over 2012 – 2013, VA transactions were dominated by PE firms

29. Divestiture strategies
RESPONSE 2: Provide compensation to
policyholder in exchange for product
(exchange offer)
Assessment of exchange offer target
Size / Homo-
geneity
Mitigating
adverse
selection
Variance in
economic vs
perceived
value
Overall
assessment
for offer
target Commentary
Olderdesigns
Guaranteed
Minimum Death
Benefit
• Subject to anti-selection if policyholders have non-uniform health status
• Typically have low perceived value compared to economic value, in
particular for enhanced death benefits
• Enhanced death benefits are excellent offer targets
Guaranteed
Minimum
Accumulation
Benefit
• Relatively homogeneous, with low expected lapse rates
• Low perceived value compared to intrinsic value
• Benefits that are past surrender charge and are close to expiry are
excellent offer targets
Moderndesigns
Guaranteed
Minimum
Income Benefit
• Not homogeneous, as older regimes require election of annuitization not
present in modern designs
• Target older regimes of income benefits that require election of
annuitization, as perceived value is likely lower compared to more recent
regimes
Guaranteed
Minimum
Lifetime
Withdrawal
Benefit
• Variety of designs makes product heterogeneous
• Highly lapse supported product makes mitigating adverse selection difficult
• High economic values (rich features) and high perceived values (lifetime
income desired) make for poor offer targets
A B C D E F
29
Significant characteristics across dimension Some characteristics across dimension Minimal characteristics across dimension

30. Alternative products
IMPACT AND RESPONSE
Increased sales of FIA w/ GLWB riders and
Deferred Income Annuities
30
Response
 FIA w/ GMWBs
– Growing sales with strong guarantees
– Book value accounting benefits
– Longer surrender charges & some
with MVAs s VAs
– Less visible fees vs. VA
 SPIAs & DIAs (IAs)
– DIAs gaining in sales, with more
companies offering
– With less equity accumulation
potential in VAs, increased appeal of
IAs with lower level of fixed
accumulation
Impact
 Decelerate VA distribution
 Pivoting of distribution networks to alternative
insurance products
A B C D E F

31. APPENDIX

32. Product
IMPACT 2: Highlights lack of a stable
relationship between reserves and capital
TAR Reserves Standard scenarioLegend:
32
A B C D E F
Total statutory funding required
MAX
Total Asset Req.
(C3P2)
Reserves (AG43)
C3P2 Standard
Scenario Amount
C3P2 Stochastic
Amount
AG43 Stochastic
Amount
AG43 Standard
Scenario Amount
CTE 90
“Adjusted” C3P2
run not reflecting
hedge rebalancing
CTE 70
“Best-efforts” AG43
run reflecting hedge
rebalancing
CTE 70
“Adjusted” AG43 run
not reflecting hedge
rebalancing
Difference, if positive,
is the RBC C3 charge
MAX MAX
CTE 90
“Best-efforts” C3P2
run reflecting hedge
rebalancing
Weighted avg. Weighted avg.

33. Product
IMPACT 2: Highlights lack of a stable
relationship between reserves and capital
33
A B C D E F
AG43 Stochastic C3P2 Stochastic
Tail measure CTE 70
Equity scenarios
Either pre-packaged scenarios (e.g., from the AAA) or alternative real-world scenarios meeting
specified calibration criteria
Interest rate scenarios No explicit rules – in particular, the long-term mean reversion parameter is unspecified
Reflection of hedging
Weighted average (based on the “E factor”) of two separate runs:
• “Best-effort”: reflects the company’s actual hedging practices, with rebalancing
• “Adjusted”: currently-held hedges are run off, but no hedge rebalancing is permitted
“E-factor”: reflection of hedging
effectiveness
• 30% to 70%
• 100% if hedging increases reserves
• 30% to 90%
• 100% if hedging increases TAR
Behavioral assumptions Prudent best-estimate behavioral assumptions
Revenue sharing reflection
Revenue sharing reflected based on company expectations subject to limitations on non- guaranteed
amounts
Diversification Allows for full in-force diversification
Tax Treatment Pre-tax Post-tax

34. Product
IMPACT 2: Highlights lack of a stable
relationship between reserves and capital
34
A B C D E F
AG43 Standard Scenario C3P2 Standard Scenario
Standard scenario measure Greatest present value of accumulated net revenue (“GPV ANR”)
Equity scenarios
• Immediate 13.5% decline
• 0% returns for the first year
• 4% return from years 2-5
• 5.5% return from year 6 onward
• Immediate 20% decline
• 0% returns for the first year
• 3% return from year 2 onward
Interest rate scenarios
• Locked-in rate specified by the SVL – constant
throughout projection
• No consistency with CTE discount rates
• Specified as 10-year UST + 50 bps – constant
throughout projection
• No consistency with CTE discount rates
Reflection of hedging No hedge rebalancing permitted; all currently-held hedges are liquidated after one year
Behavioral assumptions
• Prescribed, often unrealistic assumptions
• Some differ from C3P2 SS assumptions
• Prescribed, often unrealistic assumptions
• Some differ from AG43 SS assumptions
Revenue sharing reflection Revenue sharing limited
Diversification Conducted only on a seriatim basis Allows for full in-force diversification
Tax Treatment Pre-tax Post-tax