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Liberty National Branch Manager Meeting September 2009

Liberty National Branch Manager Meeting September 2009. TMK1104 0409. Chairman’s Opening Remarks. Mark S. McAndrew. LNL Results. Payroll Deduction Franchises Approved Includes Liberty National Traditional Branches, UA Branches Converted to LNL, and UA Cross-Sellers.

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Liberty National Branch Manager Meeting September 2009

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  1. Liberty National Branch Manager Meeting September 2009 TMK1104 0409

  2. Chairman’s Opening Remarks Mark S. McAndrew

  3. LNL Results

  4. Payroll Deduction Franchises ApprovedIncludes Liberty National Traditional Branches, UA Branches Converted to LNL, and UA Cross-Sellers 3Q 09 est. vs.2Q 09+ 42% 2Q 09 vs.1Q 09+ 68% 159

  5. PD Franchises ApprovedEstimated 3Q 09 vs. 3Q 08 Includes Liberty National Traditional Branches, UA Branches Converted to LNL, and UA Cross-Sellers Est. 3Q 09 over 3Q 08: + 495%

  6. PD Employees Enrolled Includes Liberty National Traditional Branches, UA Branches Converted to LNL, and UA Cross-Sellers 3Q 09 vs. 2Q 09+4.2% 2Q 09 vs. 1Q 09+ 249%

  7. PD Employees Enrolled Estimated 3Q 09 vs. 3Q 08(Includes Liberty National Traditional Branches, UA Branches Converted to LNL, and UA Cross-Sellers) Estimated 3Q 09 vs. 3Q 08: + 534%

  8. PD Applications Enrolled Estimated 3Q 09 vs. 3Q 08 Includes Liberty National Traditional Branches, UA Branches Converted to LNL, and UA Cross-Sellers 3Q 09 est. vs. 2Q 09+2% 2Q 09 vs. 1Q 09+114%

  9. PD Applications Enrolled Estimated 3Q 09 vs. 3Q 08 (Includes Liberty National Traditional Branches, UA Branches Converted to LNL, and UA Cross-Sellers) • Est. 3Q 09 vs. 3Q 08: • + 272%

  10. PD Premium Issued Includes Liberty National Traditional Branches, UA Branches Converted to LNL, and UA Cross-Sellers(in millions) • 3Q 09 vs. 2Q 09: • +12% • 2Q 09 vs. 1Q 09: • +95%

  11. PD Premium Issued Estimated 3Q09 vs. 3Q08 Includes Liberty National Traditional Branches, UA Branches Converted to LNL, and UA Cross-Sellers(In Millions) EST 3Q 09 vs. 3Q 08: + 118% (60-90 day Lag to Enrollment / Issue from Franchise Approval)

  12. Payroll Deduction“Fortune 40” In only one week ending August 28th, we added 4 more Charter Member T.E.A.M.s to join the founding branch within LNL’s new “Fortune 40” : Fortune 40 T.E.A.M.FVP/DirectorCons. Mos > 40 Franchises • Jason Everett – #170, Springdale AR (UA>LNL) R. Rich/T. Nuckolls 3 months • Jason Adams - #176 Springfield N. MO (UA>LNL) R. Rich/T. Nuckolls 1 month • Kevin Kimberly - #144, Huntsville S. AL (LNL) D. Harris 1 month • Angela Hanson – #15, Alex City AL (LNL) S. Nizam/R. Smith 1 month • Eddie Milner – #02, Birmingham N. AL (LNL) S. Nizam 1 month

  13. Payroll Deduction“Fortune 40” In only one week ending August 28th, we added 4 more T.E.A.M.s to join our founding branch within LNL’s new “Fortune 40” Charter Membership: Fortune 40 T.E.A.M.New PD Franchises YTD: • Jason Everett – #170, Springdale AR (UA>LNL) 227 • Jason Adams - #176 Springfield N. MO (UA>LNL) 118 • Kevin Kimberly - #144, Huntsville S. AL (LNL) 109 • Angela Hanson – #15, Alex City AL (LNL)83 • Eddie Milner – #02, Birmingham N. AL (LNL) 77

  14. Payroll Deduction“Fortune 40” Charter Branch Members in the “Fortune 40” receive certain Benefits: • LNL co-sponsors a celebration at a resort for all Agents and Managers who contributed to the branch getting over 40 approved franchises in a month • Steve Snowbeck begins to set up contracts for “Exclusive 3-year Marketing Agreements,” for Worksites to be systematically referred to qualifying “Fortune 40” branches - We have seen an average of 2 - 4 PD cases per weekreferred from each “Exclusive Marketing Agreement” to the “Fortune 40” branch - Mr. Snowbeck will attempt to set up 30 such “Exclusive Marketing Agreements” per Fortune 40 Charter T.E.A.M.

  15. Payroll Deduction“Fortune 40” What does it take to continue to receive “Fortune 40” benefits? “Fortune 40” Members must adhere to certain Responsibilities: • Continue to exceed 40 approved franchises per month • Appoint the same # of New Agents each month as the # of approved franchises • Maintain good retention (DCN, Persistency, QOB and new 40% Bonus Earners) Failure to maintain these standards will result in: a) No additionsof NEW “Exclusive Marketing Agreements” b) Re-assignment of EXISTING “Exclusive Marketing Agreements” to other branches

  16. New Agents ContractedLiberty National Branches OnlyNo UA Cross-sellers or Conversions 2Q vs.1Q 2009- 26%

  17. Agents ContractedLiberty National Branches OnlyYTD 2Q 09 vs Prior YearsNo UA Cross-sellers or Conversions 2Q 09 vs. 2Q 08- 20%

  18. Agent Producer Count @ End of QuarterLiberty National Branches Only (Includes Management)No UA Cross-sellers or Conversions 2Q vs.1Q 2009- 9%

  19. Annualized Premium IssuedLiberty National Branches Only - No UA Cross-sellers or Conversions(in millions)

  20. Total Sales 2Q09 vs. Prior YearsLiberty National Branches Only - No UA Cross-sellers or Conversions 2Q 09 vs. 2Q 08 + 6% 2Q 08 vs. 2Q 07 + 31%

  21. Three “Opportunities for Improvement” • Improve Quality - for better 1st year Premium Retention 2. Improve Bonus - for better Recruiting and Agent Retention 3. Improve Production - for better In-Force Growth and Profits

  22. Recruiting & Agent RetentionQuality of Business WrittenGrowth in Sales & In Force

  23. AGENT RETENTION

  24. Agent Retention Over the last several weeks we have analyzed Agent retention rates, relative to Production Bonuses achieved. Fortunately, we have access to correlated data from two different TMK companies (LNL and AIL), that confirms our findings, in two key areas: 1. The BONUS LEVEL reached by a New Agent makes a BIG difference in Agent retention. 2. The NUMBER OF BONUSES  reached by a new agent makes a HUGE difference in Agent retention.

  25. Agent Retention A. LEVEL OF BONUS REACHED Based on LNL & AIL data, the retention rate differs significantly at the TOP Bonus level versus LOWER bonus Levels: • Agents NEVER reaching ANY bonus level: only 1%are retained into their first 9 months of service.  b) Agents achieving bonus but NEVER getting to TOP bonus level:only 1% - 5%are retained into their first 9 months of service. c) Agents achieving TOP bonus level at least ONCE: a full 20% are retained into their first 9 months.

  26. Agent Retention B. NUMBER OF BONUSES REACHED Based on LNL & AIL data,  retention of Agents who make 8 or more bonuses in their 1st 6 mo is extremely high: • The 6th mo. retention rate  for agents who attain ANY bonus level 8 times in their 1st 6 months is only 26%.  b) The 6th mo. retention rate  for agents who achieve their TOP bonus level 8 timesin their 1st 6 months  is 79%. • The 6th month retention rate  for agents who achieve their TOP bonus level 13 timesin their 1st 6 months  is 92%.

  27. Agent RetentionNew 40% Bonus Earners vs. “Producers” Hitting 40% Bonus Level REPEATEDLY is YOUR KEY to Agent Retention As seen, when the 10%, 20% or 30% Bonus Levels are achieved without hitting the 40% level, we retain an insignificant number of agents. Regardless of whether an agent becomes a “producer” or not, the big differences in Agent Retention are seen from achieving the top bonus rate - and continuing to achieve it. This should be self-apparent to anyone: Those who make money stay with LNL - and those who don’t make money, won’t . However, as seen in the next slide, too many members of management - AT EVERY LEVEL -seem to have lost sight of such a SIMPLE CONCEPT…

  28. Unit Managers With Bonus EarnersReaching Top 40% Level in 5 weeks Data from 5 week period ending 6/26/09: Agents Hitting 40% 1st Time in 5 wks# of UMs # UMs with NO Agents hitting 40% 1st Time: 33679% of UMs ----------------------------------------------------------------------------------------- 1 Agent hitting 40% 1st Time 67 2 Agents hitting 40% 1st Time 20 3 Agents hitting 40% 1st Time 3 4 Agents hitting 40% 1st Time 1 # UMs with 1 or more Agents hitting 40% 1st Time: 91 21% of UMs Total UMs 427

  29. Branch Managers With Bonus EarnersReaching Top 40% Level in 5 weeks Data from 5 week period ending 6/26/09: Agents Hitting 40% 1st Time in 5 wks# of BMs # BMs with NO Agents hitting 40% 1st Time: 12862% of BMs ----------------------------------------------------------------------------------------- 1 Agent hitting 40% 1st Time 47 2 Agents hitting 40% 1st Time 19 3 Agents hitting 40% 1st Time 8 4 Agents hitting 40% 1st Time 2 5 Agents hitting 40% 1st Time 3 6 Agents hitting 40% 1st Time 1 # BMs with 1 or more Agents hitting 40% 1st Time: 80 38% of BMs Total BMs 208

  30. Agent Retention:New 40% Bonus Earners vs. “Producers” Due to exceptionally better retention of Agents who achieve the 40% Bonus Level, in the future we will track and reward your number of “New 40% Bonus Earners” within the Agent, Unit Manager, Branch Manager and Director/FVP Bonuses. All Unit Managers, Branch Managers, Directors & FVPs: • Any focus on increasing a branch’s “producers” is meaningless without an all-important increase in “New 1st Time 40% Bonus Earners.” • 40% Agents must continue to hit the 40% level more than once for better Agent Retention. Conclusion: • ALL Bonuses MUST be heavily based on improved Agent Retention.

  31. “Working the Contract” There are those who say they “work their contract.” This is distasteful terminology because of what it implies: if something is not expressly prohibited by a rule, it must be OK, even if not profitable - because “I only worked the contract.” Such attitudes must disappear. Our primary business purpose: • Fair benefits for our customers, • Fair, outstanding compensation for our Agents and Managers. • Fair profits for our Shareholders

  32. A.  TRAINING for Long-term Agent Retention: The following things are unacceptable and will be dealt with strongly, beyond charge-backs: BMs & UMs allowing Agents to sell the following, in order to IMPROPERLY MANIPULATE Production and Recruiting Bonuses: - Family members & Friends • Other Agents • Unit Managers • Branch Managers

  33. “Project 100” PROSPECTING is only intended to be a tool to enable an agent to network to get sponsorship referrals through family and friends, NOT to write family and friends. Allowing new agents to write family, friends or our employees misses the entire objective and purpose of training – they are not being taught prospecting skills for long-term survival. If UMs teach agents to sell family and friends, they are teaching the agent how to FAIL, since there is such a limited number of these people. No one should be more concerned with achieving a bonus than they are of the Agent’s success. When the UM teaches an Agent how to seek sponsorship referrals and then sells those instead, the Agent is shown how to generate an unlimited number of prospects, selling our products for an entire career, rather than only during an “introduction” using poor methods. The reality of the situation is that the “TRAINER” is NOT TRAININGwhen these methods are used. The “trainer” is simply trying to write business by any method to “look good”and does not deserve the position to which we have entrusted our company’s responsibility. These types of trainers will not be retained in the future.

  34. Production Minimum Standard Changes Current New 1 App Minimum 1 Net app/60 days 1 Net app/30 days Agt: $320/wk Min Avg Warn at 13 wks below Warn at 4 wks Term at 26 wks below Term at 13 wks UM: $800/wk FYA Min Avg Warn at 13 wks below Warn at 4 wks Term at 26 wks below Reassign at 13 wks BM: $1,600/wk FYA Min Avg Warn at 13 wks below Warn at 4 wks Term at 26 wks below Reassign at 13 wks Apps on other Agts or Mgrs n/a Termination Apps on Family, Self & Friends n/a None for 1st 90 days; if done, termination. After 90 days, must be submitted w/ written request for exception to advances and bonus; If not, termination for Agent; all Management Advances & Bonuses deposited to Comm. Acct

  35. BUSINESS RETENTIONQuality of Business

  36. “Every decision we make at TMK must be good for 3 parties: • It must be good for the Customers, • It must be good for the Agents and Managers, • It must be good for the Shareholders. • If any one of these three things is missing, we don’t do it.”

  37. YOUR RESPONSIBILITY We expect a high level of responsibility and intelligence from every person at Liberty National. This requires any manager or Agent to think of both the letter and SPIRIT of our rules.

  38. B.  Good PERSISTENCY is REQUIRED for Long-term Business Retention: In any type of commissioned sales industry there is a great amount of turnover in representatives’ first year of service. When a salesperson is taught to sell through family and friends, rather than to non-related prospects, the managers involved do a great disservice because if the new Agent does not stay neither does much of the business sold to their family and friends - negatively impacting long-term persistency rates. Good persistency is required for a company to recover its advanced costs spent in acquiring the business: advanced commissions, advanced bonuses and advanced expenses. Obviously, a manager who promotes poor persistency practices either doesn’t understand how we make money or does not care about the company’s profitability. Neither is good for our company’s persistency and welfare.

  39. Bank Budget Persistency 2002 2003 2004 2005 2006 2007 2008

  40. Not-Takens:Bank Budget Life 1st Q 2nd Q 3rd Q 4th Q 2007 6.2% 6.9% 9.2% 11.6% 2008 12.7% 14.0% 17.0% 16.2% 2009 15.4% 11.4% 1st Q Change = 2.5 times Higher

  41. Cumulative Persistency:Bank Budget Life • Year 4th Mo 13th Mo • 2003 82.5% 61.5% • 2004 81.3% 61.0% • 2005 80.6% 59.3% • 2006 79.3% 57.1% • 2007 77.2% 54.4% • 2008 66.0% 43.4% Change - 16.5 - 18.1

  42. The Importance of Good DCN, Persistency and QOB Rates Good persistency is the key to your success. Here are some basic calculations, simple enough for anyone to understand the importance of good persistency.

  43. Relationship of DCN to QOBALL-Agents: Active and TerminatedDCN = 0 - .24

  44. Relationship of DCN to QOB All-Agents: Active and TerminatedDCN = .25 - .50

  45. Consider LNL’s costs that we advance in order to acquire our premium written: To illustrate, we’ll use our most popular individually-sold product, < $50K Whole Life. We’ll use maximum BB commission, Production Bonus, Lead Account, and Z Account rates from all levels – Then we’ll add the cost of our field employee benefits and expenses.

  46. Agent  • 65% Annual Premium Commission  •               40% Annual Production Bonus • 15% Lead Account • 120% AP Annual Sub-total • + UM • 40% Annual Premium Commission • 24% Annual AP Production Bonus (60% of Agent’s 40%) •   64% AP Annual Sub-total • + BM • 16% Annual Premium Commission •               16% Annual Production Bonus (40% of Agent’s 40%) • 8% Annual Z Account • 40% Annual Sub-total + HO • 6% Annual AP HO Expenses • 12% Annual AP Field Employee Benefits • 18% Annual Home Office Total =  Total       242% Annual Cost of the First Year’s AP, without claim costs, profit margins or recruiting bonuses considered.

  47. On Bad QOBs, we CANNOT make money 1st Yr AP submitted: $1,000,000 15% 13th Mo. QOB: x 15% 2nd Yr Premium Retained = $150,000 Advanced Commissions, Z Account, Lead Account Production Bonuses and Other Expenses = 242% of 1st Yr AP $1,000,000 x 242% = $2.42 Million Advanced Costs Divided by: $150,000 Retained to earn back Costs = 16.13 years to recover before we make profits if all of it stayed in force, which it won’t

  48. On Good QOBs, we CAN make money 1st Yr AP submitted: $1,000,000 85% 13th Mo. QOB: x 85% 2nd Yr Premium Retained = $850,000 Advanced Commissions, Z Account, Lead Account Production Bonuses and Other Expenses = 242% of 1st yr AP $1,000,000 x 242% = $2.42 Million Advanced Costs Divided by: $850,000 Retained to earn back Costs = 2.9 years to recover before we make profits if all of it stayed in force, which it won’t

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