Playing The Hand We Were Dealt

1. Playing The Hand We Were Dealt Federal Overview • Political Landscape • Specific Threats to the Insurance Industry

2. The World According to the White House & Congress Obama Needs A Win • Health Care/Insurance Reform--$Trillion + ? • Financial Services Regulatory Reform On Tap for the Coming Year: • Obama Tax Reform

3. Health Reform Card #1

4. Card #1 • Government-run plan • No agent role • National Exchange • Taxes on life insurance and annuities • Taxes on employer-provided health plans • Taxes on FSAs, HSAs, HRAs • New Government-run LTC program • Repeal McCarran Ferguson

5. Accomplishments • Favorable Tax Treatment of Products • Role for the Agent • Commissions NOT set by HHS Secretary • Federal Government-run Option not in Senate Bill • FSA Cap Indexed • Current Antitrust Exemption Remains (Senate) • State Exchanges (Senate)

6. Challenges Ahead • New Government-Run Health Plan • New Government-Run LTC Program • Exchange Structure • Meaningful Agent Role • Medical Loss Ratio • National High Risk Pool Structure • GI without Coverage Requirement • Paying for Reform

7. Card #2 Financial Services Regulatory Reform

8. Card #2 • Federal Insurance Information Office • Additional Regulations by a Consumer Financial Protection Agency • All insurance subject to CFPA jurisdiction • Fiduciary Duty for Sale of Securities Products • impractical standards • liability concerns • commissions at risk (House bill) • additional licensure and oversight requirements (Senate bill)

9. Accomplishments • Insurance information office passed by House and included in Senate bill • NAIFA invited to White House and Treasury meetings to provide input on office • Congressional testimony on CFPA • Most Insurance was excluded from scope of House bill • Major improvements to definition of fiduciary standard in House bill • NAIFA Massachusetts grassroots success (Capuano amendment) • NAIFA Minnesota grassroots success (Ellison amendment) • NAIFA New York grassroots success (Maffei amendment) • Ongoing meetings and relationship building with senior SEC staff • Constructive dialogue with SEC working group on fiduciary duty • Ongoing meetings and relationship building with FINRA • FINRA CEO Richard Ketchum will meet with NAIFA board in March NAIFA • Multiple coalition meetings with industry partners

10. Challenges Ahead • Preventing new duplicative layers of regulation from being imposed on NAIFA members in the context of the selling insurance, selling securities, or servicing retirement plans. • Subjecting all registered representatives to Investment Advisers Act in addition to the Securities Exchange Act • New licensure requirements • New oversight requirements • CFPA threats in House and Senate bills • SRO for “financial planning” • Preventing extending an impractical and liability ridden fiduciary duty to the sale of securities products

11. Card #3 Federal Tax Challenges

12. Card #3 • The U. S. Economy in Freefall • Massive Federal “Bailout” and Economic Stimulus Program Charged to Nation’s AMX Card • Campaign Promises to Keep -Universal Health care/Insurance - “Pay As You Go” -Energy Independence-Green House Gases

13. Accomplishments • No Life Insurance/Annuity Taxes To Pay For • 2009-10 General Federal Budget • American Recovery and Reinvestment Act • S-CHIP Program • Energy Program (Cap and Trade) • Health Care Reform

14. Challenges Ahead • Statutory “Pay-Go” - Coupled with Estate Tax Reform? • Deficit Reduction Commission—with Teeth • Obama Tax Reform Advisory Board - “Almanac of options” • Expiring 2001-2003 Bush Era Tax Cuts • 2010 Federal Budget: Deficits! Deficits!

15. Card #4 State Games

16. NAIFA Estimates $2 TrillionOver 5 Years in Federal Tax Benefits Favor Insurance • $158.8 billion-Life Insurance and Annuity Cash Values • $568.3 billion-Employer-Provided Health and LTC Insurance • $ 25.1 billion-Self-Employed Health and LTC Insurance • $172.7 billion-Cafeteria Plans* • $ 17.0 billion-Employer-Provided Accident and Disability Insurance • $ 12.4 billion-Group Term Life Insurance • $ 6.5 billion-Health Savings Accounts • $418.7 billion-Capital Gains and Dividends (Investment Products)*  • $460.0 billion-Employer-Provided Pensions* • $ 73.4 billion-Self-Employed Pension Plans* • $ 40.7 billion-IRAs* * insurance industry shares tax incentives with banking, mutual fund and securities industries. Source: Congressional Joint Committee on Taxation - Projection 2009-2013.

17. Ten Ways to “Tax” InsideBuild-Up Without Taxingthe Inside Build-Up • Limit Cash Value Build-Up Based on Income of Policy/Annuity Owner • Cap on Death Benefits • Tax Life Insurance Policy Distributions Under (Annuity Like) LIFO Rules • Treat Life Insurance Loans (not taxed currently) as Withdrawals on LIFO Basis • Insurance Company Level Taxes That Diminish Policy Owner Values – e.g. Dividends Received Deduction (Obama proposed May 11, 2009)

18. Ten Ways to “Tax” InsideBuild-Up Without Taxingthe Inside Build-Up • Tax Policyholder Dividends/Interest Beyond Guaranteed Amounts • Make Changing Investment Funds Inside Variable Products a Taxable Event • Scale Back Business Owned Life Insurance “Best Practices”- for example, Cut Business Loan Interest Deduction for Businesses Owning “Key Person” Life Insurance. (Obama proposed May 11, 2009) • Restrict Use of Non-Qualified Deferred Compensation • Provide Equal Tax Incentives for All SavingsWhether Short or Long Term

19. Do You Feel Lucky?

21. Questions? • Most questions about PIC and PAC matters can be answered at http://www.naifa.org/advocacy/ifapac/ and http://www.naifa.org/advocacy/apic/ • Most questions about state and federal legislative issues can be answered at http://www.naifa.org/advocacy/ • Or, call NAIFA Government Relations at 703-770-8188