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Expanding Universe of Universal Life Products

Expanding Universe of Universal Life Products. LOMA/ LIMRA/SOA Life Insurance Conference. Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC. April 25, 2012. Indexed Universal Life has been the Fastest Growing Life Insurance Product Type of the Past Two Years. 40% growth from 2010 to 2011

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Expanding Universe of Universal Life Products

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  1. Expanding Universe of Universal Life Products LOMA/LIMRA/SOA Life Insurance Conference Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC April 25, 2012

  2. Indexed Universal Life has been the Fastest Growing Life Insurance Product Type of the Past Two Years • 40% growth from 2010 to 2011 • Three carriers sold in excess of $100 million and seven sold in excess of $50 million • Industry sales reached nearly $1 billion of premium

  3. Reasons for the success of Indexed Universal Life Low Interest Rates and High Equity Volatility Potential for Higher Returns Easing of Rule 151A Concerns Broader Distribution than VUL Synergies with Indexed Annuities

  4. Recent Trends in Indexed Universal Life Designs S&P 500 dominates, but use of Multi-Indexed Options Blossoming(adequate hedge budget) Some dissipationof indexed loan focus Some pullbackon illustrated rates Growing emphasis on strength of IUL death benefit guarantee More survivorship Via COIs and unit loads, profits arefront-ended

  5. Profile of Indexed Life Sales Source: Pfeifer Advisory LLC IUL study.

  6. IUL Competitive Position Witnessing Refinements • Four Main Focuses • IUL – Guaranteed DB (Lifetime Guar) • IUL – DB (Sold against CAUL) • IUL – Distribution • IUL – Premium Financing • Illustrations of Various Returns • All Fixed • CAUL-type Crediting (5%) • Maximum Illustration rates (7.5-8.0%) • More Comparable Crediting (6-7%) Less aggressive loan scenarios Caps and Lookback Rates fell in January

  7. IUL-DB versus CAUL-DB Premium to Carry Comparison – Growing Competitiveness Source: LifeTrends

  8. IUL-DB versus CAUL-DB Target Premium Comparison – Strong Result Source: LifeTrends

  9. Current Challenges Faced by Indexed Universal Life Manufacturers Low interest rates – this is fundamentally a fixed life product Administrative infrastructure needed more complex and costly Expensive options to hedge index returns, except for vanilla S&P 500 The market may be demanding too much from the product Illustrations still lack uniformity, although improvements seen (industry ad hoc group)

  10. The Future of Indexed Universal Life Very bright, as long as rates within 300 bps of today More activity out of captive agents and multi-line producers Single pay versions will emerge in banks, elsewhere Efforts to expand indices and use volatility control mechanisms Increased regulatory attention More carriers – IUL becomes standard offering

  11. Thank You! Timothy C. Pfeifer, FSA, MAAA E-mail: tpfeifer@pfeiferadvisory.com www.pfeiferadvisory.com

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