Insurance Industry Update

1. Insurance Industry Update Royce G. Imhoff, II President Independent Distribution American General Life Companies

2. This presentation contains representations of future trends observed by the speaker and his belief of the direction of the life insurance industry. However, such forward looking statements are subject to conditions for which the speaker did not anticipate occurring or which occurred to the magnitude that was not anticipated. The speaker disclaims any liability for any action taken by a member of the audience based on the forward looking statements made as part of this presentation.

3. External Market Factors Unprecedented economic environment January 2009 unemployment rate rises to 7.6%, highest level since 1992(a) U.S economy shrank in 4Q08, fastest rate since 1982(b) Consumer spending declined by an annualized 4.3% in 4Q08, biggest drop since 1980(b) January 2009 GDP showed the U.S. facing worst economic downturn since WWII(c)

4. As a Result of Market Factors Capital markets remain “very tight,” and when financing is available, it is very costly Credit crunch in the Fall 2008 resulted into Wall Street’s biggest crises since the Great Depression(d) Banks used the injection of government funds to strengthen their balance sheets rather than lend(d) Channels of credit have been constructed, cutting off crucial funds to consumers and businesses(d)

5. Industry Sales by Product Line

6. Life Insurer Company Ratings Fourth Quarter 2008

7. Life Insurer Company Ratings – Widespread Downgrades …But Just Six Months Later, Downgrades Spread to Major Stock Carriers (All Ratings as of April 15, 2009)

8. Economic Effect on Carrier Ratings As a result of the economic changes few life insurance carriers have been unaffected. Among highly rated carriers, only one upgrade was made by any rating agency over the last 4 months.

9. How Have Carriers Responded? Exited the market Raised rates Increased policy fees Lowered commissions Removed policy conversion privilege from term to guaranteed UL Implications due to XXX/AXXX reserve requirements

10. High Reserves Required Because of high statutory reserve requirements (e.g., AXXX/XXX), life insurers must finance the “redundant reserves” associated with Guaranteed Premium Life insurance: Level term Return of premium term Universal life insurance

11. XXX/AXXX History

12. What Is The Problem?

13. Potential impact varies by product and length of guarantee

14. The “Redundant” Reserve

15. Financing “Redundant” Reserves

16. What is the Timeline for Change? Unlike “XXX” in 2000, no deadline to reflect new economic realities Costs of securitization tend to be guaranteed for a short term Companies could run out of capacity as arrangements expire Impact likely spread out over a year or more Industry is currently about 4 months into this issue

17. Potential Price Increase

18. Variable Annuities with Living Benefits From 2007-2008 carriers became aggressive with assumptions (5-7% annual growth, double benefit base of initial investment in 10 years) At the end of 2008 Loss of fees from eroded values of assets under management Increased hedging costs for underlying derivatives supporting living benefits, such as guaranteed lifetime withdrawal benefits and guaranteed death benefits

19. Variable Annuity with Living Benefit Changes Starting in the fourth quarter 2008 carriers Removed living benefits from the market entirely Removed living benefits from certain products and/or investment strategies Raised fees across the board on living benefit riders

20. Possible Outcomes are Positive Continued contraction of product availability and simplification Continued product innovation Innovative financing solutions Aggressive reserve funding assumptions Increasing pressure for regulatory change/relief Further industry consolidation Companies will be become more niched

21. Questions?

22. Thank You!

23. Important Information