Fixed Indexed Annuity Market Update presentation, Life and Annuity Symposium - Atlanta, May 2014.

1. © 2014 Oliver Wyman
Guillaume Briere-Giroux, FSA, MAAA, CFA
Fixed Indexed Annuity Market Update
2014 Life and Annuity Symposium
Atlanta – May 20, 2014

2. © 2014 Oliver Wyman 11© 2014 Oliver Wyman
Agenda
I. Market dynamics
II. Product trends
III. Pricing, valuation and risk management issues
IV. Watch list

3. © 2014 Oliver Wyman
Market dynamicsSection 1

4. © 2014 Oliver Wyman 33© 2014 Oliver Wyman
Annuity sales trends (2007-2013)
Fixed indexed annuities (FIAs) are now firmly established as the second largest
annuity segment
Variable
Indexed
MVA
Book value
SPIA
DIA
Sales data from LIMRA
Marketriskforpolicyholder
LowerHigher

5. © 2014 Oliver Wyman 44© 2014 Oliver Wyman
Indexed annuity sales trends (2001-2013)
FIA sales have grown at a robust 7.8% annual rate since 2007
Source: Wink’s Sales & Market Report (2006 and prior) and LIMRA (2007 and later)
$Billions
6.8
11.8
14.4
23.1
27.2
25.3 25.0
26.7
29.9
32.1 32.2
33.9
39.3
0
5
10
15
20
25
30
35
40
45
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
7.8% CAGR

6. © 2014 Oliver Wyman 55© 2014 Oliver Wyman
Symetra
Competitive landscape (2013)
Today’s FIA market has a broad range of players with increasing representation
outside of the independent channel
Source: Wink’s Sales & Market Report and Oliver Wyman Research
Phoenix
Banks and wirehouses
Independent and banks
Independent organizations
PrivateEquity
Owned
USStock
Companies
Foreign
Subsidiaries
Mutual
Companies
OwnershipStructure
Lower HigherCredit Rating
A++AA-B++B+B
Market share and dominant distribution channels by ownership structure and credit rating
Privately
Held
Career
Size of bubbles represents 2013
market share
Primary distribution channels
A+
Allianz Life
Sagicor Life
Jackson National
Security Benefit
American Equity
Great
American
EquiTrust
Athene
Fidelity &
Guaranty Life
North
American
Midland
National
Lincoln Benefit Life
VOYA
Genworth
AIG
National Western
Lincoln
Protective LifeCNO Companies
Pacific Life Nationwide
OneAmerica
Western &
Southern
All other
companies
Forethought
National Life Group
15.5
10.4
11.7
7.1
7.9
%
%
%
%
%

7. © 2014 Oliver Wyman 66© 2014 Oliver Wyman
AmerUS
(Aviva USA / Athene Block)
ING
(Now VOYA)
Competitive landscape (2005)
The FIA market was previously heavily concentrated in “niche players” focusing on
the independent channel
Source: Advantage Compendium and Oliver Wyman Research
Banks and wirehouses
Independent and banks
Independent organizations
PrivateEquity
Owned
USStock
Companies
Foreign
Subsidiaries
Mutual
Companies
OwnershipStructure
Lower HigherCredit Rating
A++AA-B++B+B
Market share and dominant distribution channels by ownership structure and credit rating
Privately
Held
Career
Size of bubbles represents 2005
market share
Primary distribution channels
A+
Allianz Life
Jackson
National
American Equity EquiTrust
Midland
National
Jefferson Pilot
(Now Lincoln)
Sun Life
(Now Delaware
Life)
All other
companies
%
%
Old Mutual
(Now Fidelity &
Guaranty Life)
15.2
8.7 32.3
8.89.9
7.5
% %
%
%
%%

8. © 2014 Oliver Wyman 77© 2014 Oliver Wyman
Recap of trends in market players and distribution
1 Foreign subs in retreat
2 Private equity gaining ground
3 Expansion in banks and broker dealers
4 Broader carrier base

9. © 2014 Oliver Wyman 88© 2014 Oliver Wyman
FIA market driving forces
Significant changes are being driven by the following key forces
Forces Description Sales
New Entrants
/ Channels
M&A
Activity
Changes in
Domicile
Interest rates
• Low interest rates are driving a “search for yield” and players
with alternative asset strategies are becoming prominent   
Regulatory
• Variations in how states apply reserve and capital requirements
• Solvency II and Canadian solvency requirements   
Demographics /
consumer needs
• Income riders make up ~65% of sales and 70% of agents
consider them a “must have” (Phoenix survey)
• Baby boomers nearing retirement with significant wealth are
nearing “peak age” for FIA sales
  
Inforce blocks
• Most sales from 2004-2005 (peak years before introduction of
FIA income riders) are about to exit the surrender charge period
• This should propel sales in 2014-2015; we expect business
rolling off the books to be a more significant driver of FIA sales
moving forward (as with the VA market)


10. © 2014 Oliver Wyman 99© 2014 Oliver Wyman
Economic conditions
FIA sales are benefiting from higher investment yields since mid-2013
Source: Federal Reserve of St Louis, Treasury data and BofA Merrill Lynch US Corporate Option-Adjusted Spreads
Select Bond Yields Credit and Maturity Spreads
Credit spreads are slightly above pre-crisis levels and the yield curve is steeper. This makes
FIAs comparably more attractive than alternatives such as fixed annuities (generally shorter
maturities) or CDs.

11. © 2014 Oliver Wyman 1010© 2014 Oliver Wyman
Acquisitions by private equity / alternative buyers reshaped the FIA market
Acquirer/Seller (date)

12. © 2014 Oliver Wyman 1111© 2014 Oliver Wyman
Many FIA carriers decided to re-domicile in the past year
Regulatory environment, pool of insurance expertise and operating costs are drivers
Relocation to Iowa
announced January 2014
Relocation to Iowa
announced November
2013
Relocation to Illinois
announced January 2014
Decided to locate overall
headquarters in Des Moines
(2013) and relocated jobs
from Kansas (2014)

13. © 2014 Oliver Wyman
Product trendsSection 2

14. © 2014 Oliver Wyman 1313© 2014 Oliver Wyman
Notable base contract features and trends
1 VA / FIA hybrids
• Can be VA or FIA by design
• Designs with floors less than zero, registered and no minimum contract value
• Downside protection via “protection buffers” or “protection floors”
• Higher upside
• Short surrender charges
• Sellers include AXA, Allianz Life, MetLife
2 Volatility control
indices
• Lower hedge cost allows uncapped upside
• Sellers include Security Benefit, Symetra, Allianz Life, Fidelity and Guaranty Life
3 Liquidity features
• Features that are not new but popular include
• Return of premium
• Bailout provisions
• Nursing home waivers
• Shorter surrender charge designs gained popularity
4
Other
accumulation
features
• “Buy up” the cap
• Rolling forward index credits
• Credits linked to change in interest rates
• Guaranteed minimum values
Average commissions continue to decline, but much of this is driven by the popularity of
shorter surrender charge designs as opposed to changes in the interest rate environment

15. © 2014 Oliver Wyman 1414© 2014 Oliver Wyman
Benefit riders
1 Indexed-linked
income growth
• “Stacked” rollups (e.g. 4% + account value performance)
• “Turbocharged” account value driving income
• Income increases after income start
2
Other variations in
lifetime income
structures
• Rollups are compound / simple / or absent (e.g., vary income rates by age / duration)
• Limiting rollups / limiting younger issue ages common (AG 33)
• Less breakpoints in income bands
• More income options (flat, guaranteed increase or index-linked increases)
3 Nursing home
income riders
• 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
• Becoming increasingly common
• Complex to price
4 Enhanced death
benefits
• Offered with or without GLWB (sometimes for an additional charge)
• Wait periods
• Maximum payout
• Payout periods / reduced lump sum
Benefit riders are the most important driver of sales for many carriers, but less so for carriers
focusing on distribution through banks

16. © 2014 Oliver Wyman 1515© 2014 Oliver Wyman
Rider competiveness
The richness of GLWB riders and “extras” such as nursing home “doublers” and
GMDBs correlates fairly well with market share changes
Decreasing market share
Increasing market share
Stable market share
RiderCompositeRichnessIndex*
Lower HigherCredit Rating
A++AA-B++B+B
Market share and market share changes by credit rating and rider richness
Size of bubbles represents 2013
market share
Market share changes
A+
Company E
Company G
Company D
Company B
Company A
Company C
Company F
Source: Wink’s Sales & Market Report and Oliver Wyman Research
Rating / rider richness
“equivalent” line
*Rider composite richness index
includes allowance for GLWB
payouts, rider charges, presence
of nursing home benefits and
GMDBs.
This analysis does not factor
commissions, distribution
allowances or base credited
rates.
LowerHigher

17. © 2014 Oliver Wyman
Pricing, valuation and risk
management issues
Section 3

18. © 2014 Oliver Wyman 1717© 2014 Oliver Wyman
Pricing, valuation and risk management issues
1 Pricing assumption checklist
2 Valuation and regulatory radar
3 Risk management radar

19. © 2014 Oliver Wyman 1818© 2014 Oliver Wyman
1. Pricing assumption checklist
1 Lapses
• Base rate + impact of GLB
• Policy year skew
• Dynamic rate (base contract)
• Dynamic rate (GLB in-the-moneyness driven)
2 Age Mix / GLWB
Election
• Utilization cohorts
• Utilization skew (feature driven)
• Utilization skew (attained age driven)
3 Mortality
• Base rate
• Mortality improvement
4 Management
Actions
• Crediting rate strategy
• Initial asset mix
• Reinvestment strategy
5 Economic
Assumptions
• Interest rates
• Credit spreads and default costs
• Equity performance
• Volatility skew

20. © 2014 Oliver Wyman 1919© 2014 Oliver Wyman
2. Valuation and regulatory radar
AG 33 GLWB
statutory reserves
(in progress)
Valuation and capital for
FIA / VA hybrids (in
progress)
Solvency 2
(2016 or later)
VM-22 (2016)
Risk-based capital
(2014 updates)
2012 IAR table (2014-
2015)
IFRS 9 (2018)
US GAAP targeted updates
(TBD)
NAIC Private Equity
Issues (E) Working Group

21. © 2014 Oliver Wyman 2020© 2014 Oliver Wyman
3. Risk management radar
ORSA (2015)
Dynamic lapses
Emerging GLWB
utilization experience
Low rate environment /
Federal Reserve actions
Inforce blocks
approaching end of the
surrender charge period
Hedging of GLWBs
Hedging of interest rates

22. © 2014 Oliver Wyman
Watch listSection 4

23. © 2014 Oliver Wyman 2222© 2014 Oliver Wyman
1 Interest rates
2 M&A
3 Statutory reserving
4 Risk management of riders
Watch list