Winds of Change
In the Universal Life Market
Tommy Smoot
Life Product Development & Support
November 2012
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
Important Information
The information in this presentation is designed to be general in nature and
for educational purposes only. The complete text, with nothing taken out of
the context, is the only manner in which it should be used. It should never
be used as an argument for the replacement of any life insurance policy. The
Guardian Life Insurance Company of America, its subsidiaries, agents and
employees do not give tax or legal advice. You should consult your tax or
legal advisor regarding your individual situation.
PAS representatives are not permitted to sell any company’s non-registered
IUL products.
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
2
Thomas Smoot
Tommy began his career in the insurance industry in 1997 after graduating from Duke
University with a Bachelor of Arts degree in Economics.
As the son of a life insurance agent, Tommy was exposed to the insurance industry at a
very young age.
Among his fondest memories are those of accompanying his father on business trips to
New York City to meet with other insurance representatives.
Tommy joined Guardian in early 2010 as a Second Vice President in charge of
Competitive Intelligence and Product Development.
Among his responsibilities, Tommy oversees efforts to provide both life product support
and conservation support to field representatives.
 In his prior position with New York Life. Tommy developed a broad understanding of
the insurance industry through positions of increasing responsibility--Financial Analysis,
Strategic Marketing, Competitive Research and Product Development/ Management.
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
The World Today:
Top 15 Individual Life Insurers
Source: LIMRA, year end 2011. *Ranks and percentages based on annualized premium
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
4
Carrier
Rank
% of Business WL
% of Business UL/VUL
Corporate Structure
New York Life
1
51%
35%
Mutual
Northwestern
2
78%
9%
Mutual
Lincoln National
3
0%
90%
Stock
MetLife
4
24%
50%
Stock
State Farm
5
24%
31%
Mutual
Transamerica
6
25%
53%
Stock
John Hancock
7
3%
89%
Stock
Pac Life
8
2%
97%
MHC
Axa
9
0%
83%
Stock
Mass Mutual
10
75%
14%
Mutual
ING
11
0%
50%
Stock
Prudential
12
2%
45%
Stock
Guardian
13
82%
10%
Mutual
AIG
14
5%
53%
Stock
Hartford
15
1%
91%
Stock
5
The World Today:
Breakdown of Life Sales
• 2011 Industry sales = $12.5B, up 4% over 2010
• Most nominal growth driven by Whole Life, up 9% for the year
Source: LIMRA, year end 2011. Ranks and percentages based on annualized premium
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
6
The World Today: Lots of Action, Not All Good-I
Carrier
New York Life
Northwestern
Key Actions Since 2009
• UL SG changes
• PUA limits
• DIR down 31bps since 2009
• SunLife out of Life Market
• UL SG
• DIR down 65 bps since 2009
• Hancock exits VA space
Lincoln
National
• UL SG price increase; short pay
guardrails
• Repriced Indexed UL
MetLife
• UL SG guardrails
• Revitalizing whole life
• Dividend down 50bps (optics) since
2009
Transamerica
Other Big Happenings:
• UL SG price increase and limits
• Rumored for sale
• Hartford out of Life Market
• Aviva on the block
Key Themes:
• Carriers pulling back on SG
& Dump Ins
• Moving into IUL
• Major pressure on European
& Canadian subsidiaries
Note: the DIR is only one of three
components of a dividend
For Internal Use Only.
Not to be used with the public.
7
The World Today: Lots of Action, Not All Good-II
Carrier
Key Actions Since 2009
Other Big Happenings:
• UL SG price increases; no SG in
NY
• Indexed UL introduced
• SunLife out of Life Market
Pac Life
• Indexed UL expansion
• Hancock exits VA space
Axa
• Indexed UL introduced
Mass Mutual
• Dividend down 60 bps
ING
• Indexed UL expansion
• UL SG guardrails
• Rumored for sale
John Hancock
• Hartford out of Life Market
• Aviva on the block
Key Themes:
Prudential
• Indexed UL Introduced
• Carriers pulling back on SG
& Dump Ins
AIG
• UL SG & Indexed UL Expansion
• Moving into IUL
Hartford
• Exiting Individual Life Business
• Major pressure on European
& Canadian subsidiaries
Note: the DIR is only one of three
components of a dividend
For Internal Use Only.
Not to be used with the public.
8
The World Today: Indexed UL Rising
Sales of IUL have continuously
increased since the introduction of
the product in 1996
Source: AnnuitySpecs.com’s Indexed Sales & Market Report
23% 5 Year CAGR
For Internal use only. For
NOT
FOR USE
THE GENERAL PUBLIC.
Internal
Use BY
Only.
The Guardian Life Insurance
Company
ofpublic.
America, New York, N.Y.
Not to be used
with the
9
9
The World Then vs. Now:
Top 15 Individual Life Insurers
1982
2011
Carrier
Rank*
Corporate
Structure
What happened?
Carrier
Rank*
Corporate
Structure
Prudential
1
Mutual
Demutualized
New York Life
1
Mutual
New York Life
2
Mutual
Northwestern
2
Mutual
Equitable
3
Mutual
Acquired – AXA
Lincoln
3
Stock
MetLife
4
Mutual
Demutualized
MetLife
4
Stock
Northwestern
5
Mutual
State Farm
5
Mutual
John Hancock
6
Mutual
Transamerica
6
Stock
Mass Mutual
7
Mutual
John Hancock
7
Stock
MONY
8
Mutual
Merger – AXA
Pac Life
8
MHC
Conn. Mutual
9
Mutual
Merger– Mass
Axa
9
Stock
New England
10
Mutual
Bought – Met
Mass Mutual
10
Mutual
ManuLife
11
Mutual
Merger – JH
ING
11
Stock
American Gen
12
Stock
Bought - AIG
Prudential
12
Stock
American Nat.
13
Stock
Guardian
13
Mutual
Amer. Amicable
14
Mutual
Bought **
AIG
14
Stock
Lincoln
15
Stock
Merger - JP
Hartford
15
Stock
Guardian
30
Mutual
Merger– Manulife
*Ranks and percentages based on annualized premium
** American Amicable was acquired by PennCorp Financial Group in 1994, and sold to Thoma Cressey PE Partners in 2000
Source: LIMRA
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
10
The World Then vs. Now:
Breakdown of Life Sales
1982
2011
16%
14%
WL
Term
31%
10%
WL
Term
7%
22%
Whole Life
Current Assumption UL
Variable Universal Life
UL Secondary Guarantee
Indexed UL
Term
INDUSTRY LIFE SALES
$4.9B
$12.5B
Source: LIMRA; percentages based on annualized premium
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
11
The Thesis Statement
• The rapid rise and gradual decline of interest rates in the late 1970’s and
early 1980’s forced innovation
• Coupled with the spectacular run up in equity markets, this combined to
create the perfect setting for new products and new company structures
that appeared to be very logical strategic bets at the time they were
made
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
12
Key Macro Force #1: Interest Rates
•
•
After spiking in the late 1980s, interest rates have trended down and are now
at historic lows
U.S. Federal Reserve confirmed the plan to keep short-term interest rates
near zero through late 2014
For Internal Use Only.
Not to be used with the public.
13
Key Ramification #1:
New Products – Universal Life
Market Share by Product
10 Year
Treasury
Rate
Invention of ULE.F. Hutton
100%
17.5%
90%
15.0%
12.5%
70%
10.0%
60%
50%
7.5%
40%
5.0%
30%
20%
10 Yr Treasury Yield
% of Sales
80%
2.5%
10%
0%
0%
1980
WL
1985
1990
Term
VL/VUL
1995
2000
Current Assumpion UL
2005
ULSG
2010
Indexed UL
Source: LIMRA; Federal Reserve Bank of St. Louis
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
14
Key Market Force #2:
Market Returns
CAGR
CAGR17.3%
17.3%
54X
54X
$5,477
$100
1975
1975
1999
1999
• Investors experienced a tremendous rise in the stock market that lasted
almost 25 years, with only 3 down years from 1975 – 1999
• Carriers saw tremendous opportunities in capital markets
Source: http://www.moneychimp.com/features/market_cagr.htm
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
15
Key Ramification #2:
Demutualization & Consolidation
•
The 1990s and 2000s saw a flurry of demutualizations and mergers
Demutualizations
• Equitable (1992)
1990-1995
•AEGON merges
with Western
Reserve (1991)
• AXA invests in
Equitable (1992)
•Allstate Spun
Off (1993)
• Nationwide* (1997)
• MONY (1998)
• Manulife (1999)
• Transamerica (1999)
• MetLife (2000)
• John Hancock (2000)
• SunLife (2000)
1996-2000
• Mass Mutual merges
with Conn. Mutual
(1996)
• First Colony acquired
by GE (1996)
• AEGON merges with
Transamerica (1999)
• Chubb Life acquired
by JP (1997)
• Axa/Equitable Merger
(2000)
• Prudential (2001)
• Principal (2001)
• Phoenix (2001)
2001-2005
2006-2010
• Guardian merges w
• MetLife acquires
Berkshire (2001)
New England (2006)
• AIG buys American
• Lincoln acquired
General (2001)
• MetLife acquires General Jefferson Pilot
(2006)
American (2002)
• Manulife/Hancock
merger (2003)
• Travelers merges with
Citi (2002) and acquired
by MetLife (2005)
Mergers & Acquisitions
For Internal Use Only.
Not to be used with the public.
Source: AM Best Reports
* Life Company IPO. Shares later repurchased
16
Key Ramification #3:
New Products – Variable Life
Market Share by Product
Bull Market and Dot Coms
Rise of Variable Life
100%
1,500
90%
80%
70%
50%
40%
S&P
500 Index 30%
500
S&P 500 Index
1,000
60%
20%
10%
10
0%
1980
Source: LIMRA
WL
1985
Term
1990
VL/VUL
1995
2000
Current Assumpion UL
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
2005
ULSG
2010
Indexed UL
17
The Rise and Fall:
Variable Life
• Unending rise in the market came to an end
• Even though the market had an average return of 2.4%, it didn’t feel like it
60%
30%
0%
-30%
-60%
1999
2002
Market Returns
Sources: S&P 500; LIMRA
2005
2008
VUL Year over Year Growth
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
18
Key Ramification #4:
ULSG and Indexed UL
Market Share by Product
Indexed UL is
Growing
UL Secondary Guarantees
Lincoln Invented
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1980
Source: LIMRA
1985
WL
1990
Term
VL/VUL
1995
2000
Current Assumpion UL
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
2005
ULSG
2010
Indexed UL
19
Universal Life:
Where We Are Today. . .
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The Guardian Life Insurance Company of America, New York, N.Y.
Universal Life:
Key Macro Forces
• Interest Rates
• Regulatory Pressure Internationally
• Regulatory Pressure Domestically – AG38
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
21
Universal Life:
Interest Rate Implications
Rates are at all time lows, and there are four paths out
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The Guardian Life Insurance Company of America, New York, N.Y.
22
ULSG Reserves:
Interest Rate Implications
Reserve per 1,000 of Face
Secondary Universal Life (ULSG) requires high levels of reserves per dollar
of premium and is highly lapse and interest rate sensitive.
Reserves
400
300
200
100
0
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64
Policy Year
ULSG Level Pay
Whole Life
Source: Guardian models: Male, Age 55, Second to Best Risk Class
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
23
ULSG Dynamics:
The Big Interest Rate Call
Secondary Universal Life requires high levels of reserves per dollar of
premium and is highly lapse and interest rate sensitive.
Internal Rates of Return on UL SG
• NYS and NAIC Question AG38
• Canadian GAAP & IFRS Exacerbate Issue
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The Guardian Life Insurance Company of America, New York, N.Y.
24
ULSG:
Regulatory Pressure Internationally
• Major pressure on European & Canadian subsidiaries due to accounting
rules. Some carriers are out of the market altogether
– SunLife is out of life market
– Hancock
• Exited VA space as well as a number of life insurance lines
• Repricing SG to WL prices
– AXA and most recently ING have pulled SG products
– ING spin off
– Aviva and subsidiaries are for sale
• Doesn’t matter what you are selling – it matters what you sold
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
25
ULSG:
Regulatory Pressure Domestically – AG38
• Late 2010, NYSID raised concerns about the reserving method used by
companies for shadow account based NLGs
• In September 2011, LATF suggested AG 38 was being misapplied with
regards to reserving
• Suggested a bifurcated approach – changes applied prospectively
• Effective 1/1/13, all companies must use the revised approach for
statutory reserve valuation under AG 38
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
26
Changes to ULSG:Impact to Competitors-I
COMPANY
DATE
DESCRIPTION OF RESTRICTIVE CHANGES
Mass
Mutual
JUL 2012 • Increased rates on UL/SUL Guard following increases in January 2012
OCT 2012 • Will introduce new UL/SUL Guard with premium increases of 5%
New York
Life
FEB 2011
Penn
Mutual
SEP 2012 • Suspended the ENLG rider on the Survivorship Plus IUL product
OCT 2012 • Announces increases to premiums by 10% / 25% on level / single pays for
•
Increased premiums for both Custom UL /SUL Guarantee products
NLG products for AG 38
John
Hancock
JAN/FEB • Increased UL-G 12/SUL-G 12 by 10% and withdrew the products for sales
2012
in New York
OCT 2012 • Announces UL-G 13/ SUL-G 13 to satisfy AG 38 reserving beginning
January 1, 2013
Metlife
JUN 2012
•
Increased rates up to 24% for Guarantee Advantage UL and Legacy SUL
Lincoln
JAN 2012
FEB 2012
•
Decreased crediting rates for all interest-sensitive life products to product
guaranteed rates
Increased rates for LifeGuarantee UL / SUL
•
And many more, including Prudential, being forced to rapidly raise prices.
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
27
Changes to ULSG: Impact to Competitors-II
COMPANY
Aviva
DATE
OCT 2012
OCT 2012
DESCRIPTION OF RESTRICTIVE CHANGES
•
•
will increase premiums by 10% / 25% on level / single pays for NLG
products
Announces NLG products will be replaced with 2013 versions to satisfy
AG 38 reserving
ING
OCT 2012
•
ING announces it is pulling out of the market for lifetime guarantees by
removing all fixed UL and indexed UL products that include an NLG in
November 2012
Pacific
Life
SEP 2012
•
Announces NLG products will be replaced with 2013 versions to satisfy
AG 38 reserving
Principal
NOV 2012
•
First year premium cap of $3MM per insured and additional cap of 7
times target premium for UL & SUL products
Protective
NOV 2012
•
Announces it will no longer market products with lifetime guarantees
beginning January 2013
And many more, including Prudential, being forced to rapidly raise prices.
28
Market Landscape:
Evolution of “Lifetime Guarantee” UL
The number of pricing and product changes have significantly increased over 2011 as carriers
are scrambling to react to the low interest rate environment and new AG 38 regulations.
29
Changes to ULSG:
Impact to Guardian
ULSG / SULSG
• Some incremental reserve impact to ULSG and SULSG
• No product changes
CAUL Hybrid
• Technical adjustment
• Should have no impact on marketability
• If we did not make this change we would incur $40M of additional
statutory losses for every $5M of sales
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
30
The Thesis Statement Redux
• The rapid rise and gradual decline of interest rates in the late 1970’s and
early 1980’s forced innovation
• Coupled with the spectacular run up in equity markets, this combined to
create the perfect setting for new products and new company structures
that appeared to be very logical strategic bets at the time they were
made
•
Those bets are no longer paying off
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
31
You Are the CEO:
What Would You Do?
• Your international parent tells you that UL SG is too costly to market and
US states are telling you to hold more reserves. . .
• You have a dwindling career agency force. . .
• You need a product that is kinder to your balance sheet. . .
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
32
Let’s See What They Did
Carrier
Rank
Corporate
Structure
Career Agents
What Their
CEO Did
New York Life
1
Mutual
Yes
Northwestern
2
Mutual
Yes
Lincoln National
3
Stock
Not Really
IUL
MetLife
4
Stock
Yes**
Whole Life
State Farm
5
Mutual
Yes
Transamerica
6
Stock
No
IUL
John Hancock
7
Stock
Yes**
IUL
Pac Life
8
MHC
No
IUL
Axa
9
Stock
Yes**
IUL
Mass Mutual
10
Mutual
Yes
ING
11
Stock
No
IUL
Prudential
12
Stock
Yes**
IUL
Guardian
13
Mutual
Yes
AIG
14
Stock
Yes**
IUL
Hartford
15
Stock
No
Quit
Source: LIMRA, year end 2011. **Indicates less than 50% of life production from career agents
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
33
Indexed Universal Life What You
Need to Know
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
Question #1
Who was the first major carrier to market IUL?
1.
2.
3.
4.
Transamerica
Aviva
Minnesota Life
Pacific Life
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The Guardian Life Insurance Company of America, New York, N.Y.
35
Key Punching Points
• Does the policy have guaranteed cash values and death benefits?
• How do bad market years impact policy performance? Show me. . .
• How often does index interest get credited?
• What happens if we assume a more conservative rate of return?
• Can my potential upside change? If so, how often? Has it ever for this
policy?
• Do I get the benefit of stock dividends?
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
36
Whole Life:
Tried and True
Comparison of L121 Policy Values - Premium ($12,670)
Male 40 Best Class $1M Base Face Amount
4,500,000
4,000,000
3,500,000
$ CV & DB
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
1
3
5
7
9
11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61
Policy Year
L121 GCV
Source: Guardian Illustrations. July 2012
L121 GDB
L121 CCV
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The Guardian Life Insurance Company of America, New York, N.Y.
L121 CDB
37
What is Indexed Universal Life?
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The Guardian Life Insurance Company of America, New York, N.Y.
Indexed UL Rising
• Sales of IUL have continuously increased since the introduction of the
product in 1996
• Over 10% of the market today
Source: AnnuitySpecs.com’s Indexed Sales & Market Report
23% 5 Year CAGR
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
39
Universal Life:
Basic Mechanics
Understanding IUL requires understanding traditional UL. . .
The Company
The Client
(1)
(2)
Policy owner pays
After upfront charges,
a monthly or
premiums are added to the
annual premium policy’s cash value and earn
into the contract interest from the General
Account
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
(3)
The company
removes the policy
cost from the
policy’s cash value
on a monthly basis
40
Universal Life:
Basic Mechanics
Understanding IUL requires understanding traditional UL. . .
The Company
The Client
(1)
(2)
Policy owner pays Indexed UL credits interest
a monthly or
based on a market index
annual premium rather than the company’s
into the contract
general account
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
(3)
The company
removes the policy
cost from the
policy’s cash value
on a monthly basis
41
Indexed Universal Life in a Nutshell
• A Universal Life product that credits interest based on the performance
of an external index
• Value proposition: upside potential with a floor
50.00%
40.00%
30.00%
20.00%
10.00%
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
-10.00%
1976
0.00%
1974
You give up
all the
earnings
above this
line…
-20.00%
-30.00%
-40.00%
-50.00%
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
…to protect against
losses below this line 42
Question #2
TRUE or FALSE: Policy Caps are Guaranteed?
1. True
2. False
..but at a very low level…e.g. 3-4%...
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
43
IUL Key Components
Term
Definition
Caps
The upper limit to the interest credited
• Usually illustrated to be 10% to 12%
• Guaranteed to be no less than 3% or 4%
External Index
Most common index among IUL products is the S&P
500®
Floor
The guaranteed minimum interest crediting rate, usually
0% - 2%
Participation
Rate
Percentage of the Index performance used in the
interest crediting calculation, usually 100%
Look back
Historical period on which index credit rates are based
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The Guardian Life Insurance Company of America, New York, N.Y.
44
IUL Crediting:
Basic Mechanics
• General Account provides the floor
• General Account yield provides an options budget
• Assume 5% Portfolio Yield / 0% Floor
• Assets retained to back up Guaranteed Floor
– 95.3% * 1.05 = 100%
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
45
IUL Crediting:
Basic Mechanics
Options Budget
$112,000
$110,000
$108,000
$106,000
$104,000
$102,000
$100,000
$98,000
$96,000
$4,762
Options
Budget
9.54%
increase
in Index
$9,524
Notional
Value
$100,000
$100,000
BOY
EOY
100%
Investment
Return
$94,000
Source: OWROpinion
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
46
IUL Crediting:
Basic Mechanics
Effect of Options Return
$115,000
$110,000
9.524%
Crediting Rate
$105,000
$9,524
Return
$100,000
Options Budget
$4,762
Retained Asset
$95,000
$90,000
$95,238
x 1.05 =
$100,000
$85,000
BOY
Source: OWROpinion
EOY
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
47
Caps and Floors:
How They Work
You give up all
the earnings
above this
line…50.00%
S&P 500 Index
40.00%
30.00%
20.00%
10.00%
0.00%
-10.00%
-20.00%
-30.00%
-40.00%
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
-50.00%
…to protect against
losses below this line
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
Source: http://pages.stern.nyu.edu/~adamodar/pc/datasets/histretSP.xls
The Guardian Life Insurance Company of America, New York, N.Y.
48
IUL Premium Flow
Comparison of IUL Policy Values - Premium to Endow ($4,829)
Male 40 Best Class $1M Base Face Amount
1,200,000
1,000,000
$ CV & DB
800,000
600,000
400,000
200,000
0
1
3
5
7
9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61
Policy Year
IUL Endow GCV
IUL Endow GDB
IUL Endow CCV
IUL Endow CDB
Source: Competitor Illustrations. July 2012
Note: PacLife Indexed Accumulter 4, Male, Best Class Age 40, $1M Face DBO1, 7.25% Credit Rate
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
49
IUL L121 Premium
Comparison of IUL Policy Values - L121 Premium ($12,670)
Male 40 Best Class $1M Base Face Amount
12,000,000
Policy
Collapses
@ Age 59
10,000,000
$ CV & DB
8,000,000
6,000,000
4,000,000
Market
Risk/Return
2,000,000
0
1
3
5
7
9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61
Policy Year
IUL L121 GCV
IUL L121 GDB
IUL L121 CCV
IUL L121 CDB
Source: Competitor Illustrations. July 2012
Note: PacLife Indexed Accumulter 4, Male, Best Class Age 40, $1M Face DBO1, 7.25% Credit Rate
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
50
Key levers:
Caps
Caps can move from year-to-year. . .
Carrier
Guaranteed Cap
Prior Cap
Current Cap
Axa
3.00%
12.00%
11.00%
Aviva Lifetime Builder
4.00%
12.00%
• 11.50% (Jan ’10)
• 12.25% (Sep ’10)
ING Indexed UL-CV
3.00%
11.00%
11.50%
Minnesota Eclipse IUL
0.00%
17.00%
• 16.00% (Mar ‘09)
• 15.00% (Jul ‘10)
• 14.00% (Nov ‘11)
• 13.00% (Sept ’12)
PacLife Indexed Acc.
3.00%
12.00%
• 13.00% (Feb ‘11)
Penn Mutual Acc. Builder
4.00%
14.00%
• 13.00% (Oct ‘10)
• 12.00% (Feb ‘12)
Source: company illustrations and announcements
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
51
Question #3
TRUE or FALSE: Illustration Lookbacks are prescribed by the NAIC?
1. True
2. False
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
52
Key Levers:
Lookbacks
• Illustrations use a credit rate based on an average based historical
market/index performance
• The company can choose the time period, and there are currently no
NAIC guidelines
• Many companies use 25-30 year look-backs. Pacific Life uses 40-year
look-back
• F whole life illustrations worked that way, Guardian could illustrate at
9.10% (average dividend interest rate from 1984-2011)
Source: Full Disclosure - 2011
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
53
Key Levers:
Indexing Method
• Some companies offer multi year indices (two year or five year)
• These index methods usually result in a delay in crediting the interest
until the end of the period
– Some, but not all, of accounts are credited with 1% per year along
the way
• No ability to lock in gains along the way
– The annual minimum interest rate (0-1%) applies to the entire 5-year
period. There is no floor on an annual basis
– A gain in one year can be wiped out by losses in the following year
• Five year indexing offers the least liquidity
Source: Company’s brochure.
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
54
Impact of Volatility:
Poor Early Performance
IUL policy performance, like VUL, can be detrimentally impacted by poor
early fund index returns.
IUL Premium Comparison Pay to 100/Endow at 100
Male 2nd Best Class Age 40, $1,000,000 Face
Scenario 1
Level Interest
Interest Scenario
Premium
CV @ Age 100
All Years: 7.75%
Scenario 2
No Interest in Select
Years
Scenario 3
Scenario 1 Premium
Scenario 2 Interest
Years 1-3: 7.75%
Years 4-6:
0%
Years 5-20: 7.75%
Years 21-24: 0%
Years 24+ 7.75%
Years 1-3: 7.75%
Years 4-6:
0%
Years 5-20: 7.75%
Years 21-24: 0%
Years 24+ 7.75%
$8,250
$17,937
$8,250
$1,001,103
$1,000,354
Policy Lapses at Age 83
Source: competitor illustrations as of 11/11
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
55
Question #4
TRUE or FALSE: Index credit rate returns typically reflect dividends?
1. TRUE
2. FALSE
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
56
Key Levers:
Credit Rate Volatility
Comparison of IUL Policy Values - Premium ($4,829)
Male 40 Best Class $1M Base Face Amount
Random Interest, Avg Return of 6.70%
1,200,000
1,000,000
$ CV & DB
800,000
600,000
400,000
200,000
0
1
3
5
7
9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61
Policy Year
IUL CCV
IUL CDB
Source: Competitor Illustrations. July 2012
Note: PacLife Indexed Accumulter 4, Male, Best Class Age 40, $1M Face DBO1, Random Credit Rate
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
57
Key Levers:
Loan Regimes
• IUL policies are often positioned for policy distributions or income in retirement
• The potential volatility in credit rates can dramatically impact distributions
Loan Type
Standard Wash Loan
Description
• Interest is credited on a fixed
rate
For You To Know
• Most
conservative
• Loan rate is typically set at the
fixed rate but can have a 25bps
to 75bps spread
Indexed Loan
• Interest based on indexed return • Some arbitrage
• Loan interest is set at a fixed
rate
Variable Loan
• Interest based on indexed
return
• Arbitrage
• Loan interest is set to the
Moody’s Corporate Bond Index
Source: competitor illustrations as of 11/11
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
58
Opportunities For You. . .
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
Two Key Opportunities
• Indexed UL – Counterpunching
• Current Assumption UL – Price vs. Value
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
60
Marketing Materials
• Vantage Point Indexed
Universal Life (IUL) Client
Flyer, Pub4597
• Questions to Ask About Indexed
Universal Life Flyer, Pub4387
• Indexed Universal Life: What
You & Your Clients Should
Know – Brainshark
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
61
Current Assumption UL:
Price vs. Value:
Guardian’s CAUL can provide clients with better value by offering robust cash
value accumulation and competitive death benefit guarantees…
Male / 2nd Best Class
$1,000,000 Face Amount
UL-G-12
Guaranteed to Age
Level of Guarantee
Ag
e
55
Annual Premium
Premium Paid @ A85
Cash Value @ A85
Ag
e
65
Annual Premium
Premium Paid @ A85
Cash Value @ A85
Life Guarantee
UL 2012
Current
Assumption UL
Guarantee
Advantage UL
Universal Life
Protector IV
121
Lifetime
121
90
Lifetime Life Expectancy
121
Lifetime
121
Lifetime
14,671
440,130
7,907
13,555
406,650
0
13,523
405,690
311,318
12,352
370,560
0
11,854
355,620
0
26,495
529,900
170,252
21,788
435,760
0
21,651
433,020
219,097
22,354
447,080
0
20,498
409,960
0
..while most UL products with “Lifetime Guarantees”
provide NO cash value after years of paying premiums!
 For Hancock, Lincoln, Met Life, and Principal: Level premiums to guarantee a $1,000,000 Face Amount through the insured’s A121
 Guardian’s CAUL: Level premiums to endow at the insured’s A121 with the SG rider providing a guarantee through the insured’s A90
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
62
Enhanced Accelerated Benefit
Rider
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
Enhanced Accelerated Benefit Rider
(EABR)
EABR allows receipt of a portion of a permanent policy’s death benefit if the
insured is diagnosed with a terminal and/or chronic illness.
• Available on: L95, L99, L121, L10, L20, L65; Achiever Gold; Single
Premium Whole Life; Current Assumption IL; ULSG (2012); Pension
Trust L95, L99, L121, WL3, CUAL
• Minimum policy base face amount: $100,000
• Issue ages: 15-75 for IN, KS, MS, NJ, NY, OH, OR, SC, VA, WA; Ages
0-75 all other states
• Not available on substandard risks, reinsured cases or corporate owned
policies
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
64
Enhanced Accelerated Benefit Rider
(EABR) cont’d
• Benefits may qualify for tax favorable treatment
• Policyholder chooses how benefits are used
• Bill/receipts do not need to be submitted for payment
• Benefits are distributed under the Lien Approach. Policyowner can
access cash values and a percentage of the net amount at risk
• CT, MA, NJ, NY, and VA are some of the states that have product
differences. Consult the Life Insurance Resource Center for full details
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
65
EABR:
Chronic Illness
Chronic Illness – illness which
prevents you from permanently
performing 2 out of 6 Activities of
Daily Living (ADL’s):
•
•
•
•
•
•
Eating
Bathing
Continence
Dressing
Toileting
Transferring
Permanent Cognitive Impairment –
requires substantial supervision to
protect the insured from threats to
health and safety
• Dementia
• Alzheimer’s
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
66
EABR:
Chronic Illness Waiting Period
90 day Waiting Period before benefits will be accelerated in all states
EXCEPT:
• IN, KS, MA, MD, MS, NJ, NY, OH, OR, SC, VA, WA
The Waiting Period begins on the date the physician certifies the insured
meets the definition of a Triggering Condition.
Accelerated proceeds create an interest-bearing lien on the policy (similar to
a loan).
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
67
EABR:
Chronic Illness
Maximum Annual Tax-Free Benefit for Chronic Illness
• IRS Per diem limitation for 2012:
– $310 per day OR
– $113,150 annually
Applicable to policies with face amounts of $250,000 or greater. Amount is
prorated for smaller policies. Amounts may be adjusted for inflation.
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
68
EABR:
Net Amount at Risk
How much of the “Net Amount at Risk” can be accelerated?
Chronic Illness:
• 20% to 80% depending upon insured’s age at onset
Terminal Illness:
• 80%
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
69
EABR:
NAR Available for Chronic Illness
AGE *
% OF NAR
AGE
% OF NAR
To 67
20%
75
52%
68
24%
76
56%
69
28%
77
60%
70
32%
78
64%
71
36%
79
68%
72
40%
80
72%
73
44%
81
76%
74
48%
82+
80%
* The percent of the NAR that will be locked in at the time of first claim based
on insured’s attained age.
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
70
Customized Presentation Available in
Navigator Online
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
71
Customized Presentation Available in
Navigator Online
For Internal use only. NOT FOR USE BY THE GENERAL PUBLIC.
The Guardian Life Insurance Company of America, New York, N.Y.
72