COMPETITIVE INTELLIGENCE REPORT

Transcription

1 COMPETITIVE INTELLIGENCE REPORT July 2012 M Financial Group regularly provides Product Illustration Comparisons that address changes in the marketplace, offer perspective on a wide array of products, and support Member Firm efforts to identify effective product solutions for clients. This insight serves as a significant competitive advantage for Member Firms. Two New M Proprietary IUL Products from Pacific Life: MVP Indexed UL II and MVP Indexed LTP Pacific Life recently introduced two indexed universal life (IUL) products MVP Indexed LTP and MVP Indexed UL II further expanding their M proprietary MVP Series. The market-segmented products in Pacific Life s MVP Series are available exclusively through Member Firms of M Financial Group. Pacific Life s MVP Series now consists of the following: MVP IUL II MVP IUL LTP MVP UL-DB MVP UL-CV MVP VUL IX MVP IUL-Survivorship MVP Survivorship VUL II The new Pacific Life IUL products feature competitive premium and distribution solves, flexibility in strength of cash values (early versus long term), a diverse index strategy line up, and no-lapse guarantee coverage up to life. In addition, Pacific Life is the only M Carrier to offer an index strategy in a variable product (MVP IX), providing all allocation options within one product (separate account, fixed account, fixed LT, and Index). The following competitive analyses include MVP IX with the index account. MVP Indexed UL II Product Highlights Top tier to best-in-class premium solves across all funding scenarios, especially longer pays. See appendices B D for details. Emphasis on higher early duration surrender values, such as a first-year surrender value to premium ratio in excess of 85% for Single Pay funding. See appendix E for details. Three riders designed to enhance early duration surrender values that can be used for premium financing and corporate-owned cases: 1. SVER-2: Available for individually-owned policies, this provides a firstyear surrender value to premium ratio of nearly 100% for Single Pay funding. See appendix E for details. 2. SVER-C: Available for corporate-owned policies, this provides a firstyear surrender value to premium ratio in excess of 100%. 3. ROP-2: Guarantees a return of premium for the first seven policy years. The return of year 1 premium is limited to 95% during the first five policy years. Product applications: Wealth transfer, collateral assignment split dollar, corporate-owned or corporate-sponsored policies, life insurance in qualified plans, premium financing, and executive benefit plans.

2 Pacific Life's New IUL Products (continued) MVP Indexed LTP Product Highlights Top tier to best-in-class premium solves, especially shorter pays. See appendices B D for details. Top tier retirement income solves. See appendices B D for details. Strong long-term cash value accumulation. See appendix E for details. Varying Increase Rider: Schedule face amount increases at policy issue. Product applications: Wealth transfer, collateral assignment split dollar, life insurance in qualified plans, and Section 79 plans. Features offered on both products 20-year Short-Term No-Lapse Guarantee (declining for issue ages 51 to 75). Flexible Duration No-Lapse Guarantee up to age 120. See appendix F for details. Standard (Fixed) loan option with wash loans in policy years 6+. Alternate loan option allowing loan account value to remain invested in index accounts with 1-year durations (loan interest rate charged equal to 5.75%). Overloan Protection rider. Summary of Pacific Life Indexed Account Options Pacific Life offers the most diverse fund line up among all M Carriers: 1-year Point-to-Point: S&P 500 index, 100% participation rate, 13% cap, and 0% floor. 1-year International Point-to-Point: Equally weighted composite of the EURO STOXX 50, Hang Seng, and MSCI Emerging Markets indices; 100% participation rate, 13% cap, and 0% floor. 1-year High Par Point-to-Point: S&P 500 index, 150% participation rate, 11% cap, and 0% floor. 2-year Point-to-Point: S&P 500 index, 100% participation rate, 32% cap, and 0% floor. 5-year High Par Point-to-Final Year Monthly Average: S&P 500 index, 115% participation rate, no cap, and 0% floor. Appendix A provides a summary and commentary of the hypothetical look-back rates for the index strategies contained in the Pacific Life IUL products. Please refer to appendices B F for detailed product illustration competitive results and an analysis of the extended no-lapse guarantee rider. For More Information For more information, please contact: goldsteinfinancial.com insurancedesigncenter.com An affiliate of Goldstein Financial Group, LLC 500 Lake Cook Road, Suite 270 Deerfield, IL This information has been taken from sources we believe to be reliable but there is no guarantee as to its accuracy. This material is not intended to present an opinion on legal or tax matters. Please consult with your attorney or tax advisor, as applicable. 2 Competitive Intelligence Report Pacific Life's New IUL Products

3 Appendix A: Pacific Life Index Strategies The chart below provides details on the six index strategies offered by Pacific Life, the five index strategies in the MVP IUL products (and a fixed account), and the one index strategy in MVP IX VUL. One-year, two-year, and five-year segment terms are offered. The one- and two-year segment strategies use a pointto-point growth rate calculation (index value at end of segment term, divided by index value at beginning of index term). The five-year index strategy uses a point-to-final year monthly average growth rate calculation (average of 12 monthly values in the final year of the index term, divided by the index value at the beginning of the index term). All strategies refer to the S&P 500 index without dividends for the growth rate calculation except the international strategy, which uses an equal weighting of the Hang Seng, Euro Stoxx 50, and MSCI emerging markets. The chart below also contains hypothetical historical look-back rates for each index strategy. The look-back rates are not the actual rates credited; they are hypothetical, based on the current index mechanics (participation rate, cap, and floor) applied to historical results of the underlying index. Look-back rates can provide perspective, but are not a predictor of future performance. Note there is a wide variance in results by time period. Look-back rates can be used to evaluate the potential performance differential of varying index strategies and can be used to provide perspective in setting an index crediting rate assumption. The look-back calculation is based on January 1 to January 1 index values. The two-year index strategy provides the highest 25-year annual look-back rate of 7.7% (but the second lowest 5-year look-back rate at 3.1%). For the two-year strategy, the crediting rate is not applied until the end of the two-year segment term, with the underlying account value being credited 0% in the interim. If the policy is surrendered, no index credit is provided for the current segment period. The same concept applies to the five-year index strategy, where the crediting rate is not applied until the end of the index term (five years). The popular one-year S&P 500 point-to-point (13% cap and 0% floor) has a 25-year look-back rate of 7.2%, versus the S&P 500 without dividends of 6.8%, and is higher than the one-year high par index strategy (6.8%). Note the one-year point-to-point five-year look-back rate is 5.7% where the S&P 500 without dividends was negative over the same time period. This illustrates the protective value of the 0% floor. Historical rates of return for the S&P 500 with dividends have also been provided for perspective as dividends are included in VUL separate account returns. Annual dividends typically range from 1% to 3%. Product Index Strategy MVP Indexed LTP & MVP IUL II Segment Term Participation Rate Cap Floor 25-Year Look-back* (Jan'87 Jan'12) 5-Year Look-back* (Jan'07 Jan'12) S&P Year Point-to-Point 100% 13.00% 0.00% 7.22% 5.70% S&P Year High Par 150% 11.00% 0.00% 6.81% 5.34% Multi (Int'l) 1 1-Year International 100% 13.00% 0.00% N/A 5.87% S&P Year Point-to-Point 100% 32.00% 0.00% 7.73% % S&P Year Point-to-Average 115% No Cap 0.00% 7.15% 0.00% MVP IX S&P Year Point-to-Point 100% 11.00% 1.00% 6.63% 5.41% * Compound Annual Growth Rate S&P 500 without Dividends 100% No Cap No Floor 6.81% -2.38% S&P 500 with Dividends 100% No Cap No Floor 9.26% -0.25% 1 Hang Seng / EURO STOXX 50 / MSCI Emerging Markets - each 1/3 weighting 2 24-year hypothetical look-back rate used 3 Competitive Intelligence Report Pacific Life's New IUL Products

4 Appendix B: Illustration Competitive Comparisons with Look-Back Rates The following illustration comparison results reflect all M Carrier IUL products using their highest 25-year lookback rate for a one-year index strategy (as shown below). By including the look-back rates, the comparison attempts to focus on total product performance, which is comprised of the underlying insurance charges and the value of the index strategy provided. The 25-year look-back rate was chosen as a proxy for the value provided by the index strategy as it is a longer time period reflecting the long-term nature of funding life insurance. As mentioned previously, look-back rates can provide perspective but are not a predictor of future performance. Relative results can vary widely by time period chosen. The chart below provides a summary of the highest 25-year look-back rates for the one-year index strategies offered in the M Carrier IUL products. John Hancock s uncapped strategy, with a 5.5% reduction to the S&P 500 growth rate, provides the highest 25-year look-back rate at 8.09%. Lincoln National s 13% cap and 1% floor provides the second highest 25-year look-back rate at 7.51%. Pacific Life s (and John Hancock s) 13% cap and 0% floor provides the third highest 25-year look-back rate at 7.22%. Nationwide s proprietary IUL product, Marathon IUL, with the pointto-monthly average strategy (growth rate equal to the average of 12 monthly index values divided by the beginning index value), provides a lower 25-year look-back rate of 6.7%. M Carrier Summary of Highest Look-back Rate for the 1-Year Index Options by Product Carrier Product Index Strategy ING Segment Term Participation Rate Cap Floor 25-Year Look-back* (Jan'87 Jan'12) IUL-CV S&P Year Point-to-Point 100% 11.00% 1.00% 6.63% IUL-GDB S&P Year Point-to-Point 100% 11.50% 1.00% 6.86% John Hancock Indexed UL 11 S&P Year Point-to-Point - Uncapped 100% less 5.50% 0.00% 8.09% Lincoln National LifeReserve IUL Accumulator S&P Year Point-to-Point 100% 13.00% 1.00% 7.51% LifeReserve IUL Protector S&P Year Point-to-Point 100% 12.00% 1.00% 7.09% Nationwide Marathon IUL Multi (USA) 1-Year Monthly Average 140% 12.00% 0.00% 6.72% Pacific Life MVP Indexed II & LTP S&P Year Point-to-Point 100% 13.00% 0.00% 7.22% MVP IX (indexed account) S&P Year Point-to-Point 100% 11.00% 1.00% 6.63% Competitive Intelligence Report Pacific Life's New IUL Products 4

5 Appendix C: MVP Premium Solves Match to High Base The following comparisons include the following products and assumptions: All M Carrier IUL Products (Proprietary and Shelf) 5 Carriers and 12 products Male, nonsmoker classes 25-year look-back crediting rates (appendix B) and current charges Match to High Base Commissions Pacific Life base blends at 50% or higher Grids show percentage increase/(decrease) of premium or income solve for best MVP product versus bestin-class of the other products Color Legend MVP has the best premium or income solve MVP within 3% of best premium or income MVP within 10% of best premium or income MVP greater than 10% over best premium or income Level Pay to $1 Age 120 Best NS 2% IUL II 1% IUL II -2% MVP IX 2nd NS 1% IUL II 2% IUL II -3% MVP IX Std NS 1% IUL II 7% IUL II -5% MVP IX 10-Pay to Endow Age 120 Best NS 5% LTP 1% IUL II -2% IUL II 2nd NS 2% LTP 0% LTP -1% IUL II Std NS -3% LTP 0% LTP 0% MVP IX Single Pay to Endow Age 120 Best NS 5% IUL II -1% IUL II -4% IUL II 2nd NS 1% LTP 0% IUL II -3% IUL II Std NS -3% LTP -2% LTP -1% IUL II Match to High Base Premium Solve Summary Level Pay funding: MVP IX with indexed account provides best-in-class premium solves at age 65, while MVP IUL II is most competitive at ages 45 and 55 with premium solves typically within 2% of best-in-class. 10-Pay funding: MVP IUL II provides best-in-class premium solves at age 65, while MVP LTP is most competitive at ages 45 and 55 with best-in-class premium solves for the standard nonsmoker class and typically within 2% of best-in-class for the top 2 nonsmoker classes. Single Pay funding: MVP IUL II provides best-in-class premium solves for ages 55 and 65, while MVP LTP provides best-in-class premium solves in the standard nonsmoker class. 5 Competitive Intelligence Report Pacific Life's New IUL Products

6 Appendix D: MVP Premium and Income Solves Match to Low Base The following comparisons include the following products and assumptions: All M Carrier IUL Products (Proprietary and Shelf) 5 Carriers and 12 products Male, nonsmoker classes 25-year look-back crediting rates (appendix B) and current charges Match to Low Base Commissions Pacific Life base blends typically below 50% Grids show percentage increase/(decrease) of premium or income solve for MVP versus best-in-class of the other products Color Legend MVP has the best premium or income solve MVP within 3% of best premium or income MVP within 10% of best premium or income MVP greater than 10% over best premium or income Level Pay to $1 Age 120 Best NS -2% IUL II -4% IUL II -2% MVP IX 2nd NS -1% IUL II -2% IUL II -2% MVP IX Std NS -2% LTP -1% LTP -4% MVP IX 10-Pay to Endow Age 120 Best NS 0% LTP 0% LTP -3% IUL II 2nd NS 1% LTP -1% LTP -2% IUL II Std NS -1% LTP -3% LTP 0% IUL II Single Pay to Endow Age 120 Best NS 1% LTP 1% LTP -4% IUL II 2nd NS 3% LTP 1% LTP -2% IUL II Std NS 1% LTP -1% LTP 0% IUL II Retirement Income* UW Class Age 45 Age 55 Best NS -7% LTP -7% LTP 2nd NS -7% LTP -7% LTP Std NS -6% LTP -6% LTP * Pay to age 65, distributions from age 66 to age 85, solve for $1 at age 120 Match to Low Base Premium and Income Solve Summary MVP IUL II provides best-in-class premium solves for Level Pay funding and at age 65 for both 10-Pay and Single Pay funding. MVP IX with the indexed account provides best-in-class premium solves at age 65 for Level Pay funding. MVP LTP is most competitive with 10-Pay and Single Pay funding at ages 45 and 55 with best-in-class premium solves for 10-Pay funding and within 3% of best-in-class for Single Pay funding. MVP LTP provides the second highest retirement income solves that are within 7% of best-in-class. Note that John Hancock s IUL product wins in this scenario with the highest 25-year look-back rate of 8.09% (versus 7.22% for MVP LTP). Competitive Intelligence Report Pacific Life's New IUL Products 6

7 Appendix E: Comparison of Cash Values Pacific Life created two proprietary IUL products, each of which focuses on different needs. MVP Indexed UL II is designed to offer higher cash surrender values in the policy s early years. MVP Indexed LTP is designed to offer strong long-term cash accumulation. For All Pay funding (see chart below) MVP IUL LTP provides the strongest cash accumulation with the surrender value exceeding the cumulative premium paid by policy year 20. MVP IUL II provides the lowest premium solve for this scenario and the highest surrender values for the first 10 policy years, with ultimate surrender values reaching 100% of cumulative premiums paid by approximately year % 180% 170% 160% 150% 140% 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% CSV to Cumulative Premium Ratio All Pay to $1 at Age 120 Male, Age 55, Best Nonsmoker Class PL MVP IX (ia) PL MVP IUL-LTP PL MVP IUL II For Single Pay funding (see chart below) MVP IUL II provides a first-year surrender value to premium ratio of approximately 85%. With the SVER-2 rider, the first-year cash values can be increased, with a first-year surrender value to premium ratio of nearly 100%. 220% 210% 200% 190% 180% 170% 160% 150% 140% 130% 120% 110% 100% 90% 80% 70% CSV to Cumulative Premium Ratio Single Pay to Endow at Age 120 Male, Age 55, Best Nonsmoker Class PL MVP IX (ia) PL MVP IUL-LTP PL MVP IUL II PL MVP IUL II SVER 7 Competitive Intelligence Report Nationwide's Marathon IUL

8 Appendix F: Extended No-Lapse Guarantee Rider Pacific Life offers IUL products that include an extended no-lapse guarantee rider (ENLG) for up to life (age 120). The analyses below are based on the following assumptions: Product: MVP IUL II Male, age 55, best nonsmoker class $2 million death benefit Funding: Level Pay to age 120 and 10-Pay to age 120 The chart below analyzes the ENLG rider for Level Pay to age 120 funding. The IUL II ENLG to age 90 is very competitive with a guarantee premium that is 12% less than a premium solve that targets $1 of cash value at age 120 ($21,301 versus $24,133). However, this competitive guarantee premium does have some risk. Age 90 is the life expectancy for a high net worth healthy 55-year old, and consequently, there is a 50% probability of outliving the guaranteed coverage. Using what may be considered a reasonable index crediting rate assumption of 6.5% (based on historical look-back rates) provides only one additional year of coverage (age 91) based on non-guaranteed charges. Even with a more aggressive index crediting rate assumption of 7.0%, coverage only lasts to age 92 with an associated 40% probability of outliving that non-guaranteed coverage. Funding at this low guarantee to age 90 level may actually be considered aggressive. Another option is to fund for $1 of cash value at age 120 with no ENLG rider, based on a reasonable index crediting rate assumption of 6.5%, and review downside risk. The resulting premium of $24,133 is 13% more expensive than the guarantee to age 90 premium of $21,301, but it does provide downside cushion with the policy lasting to age 101 (10% probability of outliving) with a 6.0% index crediting rate assumption and to age 94 (33% probability of outliving) with what may be considered a conservative 5.0% index crediting rate assumption. However, the guarantee only lasts to age 70 with the automatic short-term NLG that is provided. Turning on the ENLG rider at this funding level ($24,133) will provide a guarantee to age 93 (37% probability of outliving coverage) and illustrates coverage to age 101 (10% probability of outliving coverage) based on current non-guaranteed charges and a 6.5% crediting rate assumption. A more conservative premium level would be to fund for $1 of cash value at age 120 with election of the ENLG rider and assuming a 6.5% index crediting rate assumption and current non-guaranteed charges. The premium at this funding level is $25,057 or 18% more than the guarantee to age 90 premium of $21,301. The policy illustrates nonguaranteed coverage for life and is guaranteed to age 94 (33% probability of outliving). The IUL II guarantee to age 100 premium of $30,690 may be considered very expensive as it illustrates hitting corridor and a $16 million cash value at age 120 based on current non-guaranteed charges and a 6.5% index crediting rate assumption. Even with a very conservative 3.0% index crediting rate assumption (and current charges) the policy illustrates coverage to age 100 (12% probability of outliving). Index ENLG Analysis: Level Pay to Age 120 ENLG Crediting Guaranteed Non-Guaranteed Rider Rate Premium Lapse Age 1 Outlive 2 Lapse Age 3 Outlive 2 Guarantee to Age 90 Analysis Yes 6.5% 21, % 91 45% Yes 7.0% 21, % 92 40% No 6.5% 24, % $1 CV 0% No 6.0% 24, % % No 5.0% 24, % 94 33% Yes 6.5% 24, % % Yes 6.5% 25, % $1 CV 0% Guarantee to Age 100 Analysis Yes 6.5% 30, % $16M CV 0% Yes 4.4% 30, % $1 CV 0% Yes 3.0% 30, % % Competitive Intelligence Report Nationwide's Marathon IUL 8

9 Appendix F: Extended No-Lapse Guarantee Rider (continued) For 10-Pay funding, MVP IUL II s ENLG to age 90 may be considered expensive. The resulting premium of $52,006 is 13% higher than a premium solve targeting $1 of cash value at age 120 with current charges and a 6.5% index crediting rate ($45,832). A more economical funding level that provides a guarantee almost to life expectancy is a premium solve that targets $1 of cash value at age 120 based on current charges and a 6.5% crediting rate with the ENLG rider elected. This funding level of $47,410 is 9% lower than the guarantee to age 90 premium level ($52,006), provides a guarantee to age 88, and illustrates coverage for life based on current charges and a reasonable crediting rate assumption of 6.5%. For 10-Pay funding, the guarantee to age 100 premium is not allowed as it fails to satisfy the guideline premium test, consequently restricting premiums. ENLG Analysis: 10-Pay to Age 120 Index ENLG Crediting Guaranteed Non-Guaranteed Rider Rate Premium Lapse Age 1 Outlive 2 Lapse Age 3 Outlive 2 Guarantee to Age 90 Analysis Yes 6.5% 52, % $10M CV 0% Yes 5.5% 52, % % No 6.5% 45, % $1 CV 0% No 6.0% 45, % 98 18% Yes 6.5% 45, % 103 6% Yes 6.5% 47, % $1 CV 0% Yes 6.0% 47, % 98 18% Guarantee to Age 100 Analysis Yes 6.5% DOLI Restriction In summary, the MVP IUL II ENLG rider provides flexible guaranteed coverage up to life. The ENLG rider is most competitive for longer pay funding and guaranteed coverage up to life expectancy. The ENLG rider is more expensive for short pays and for guaranteed coverage in excess of life expectancy. The following should be reviewed/analyzed when considering the ENLG rider: Impact on current performance (i.e., the cost of the rider). The probability of outliving the guaranteed coverage period. The resulting non-guaranteed coverage period and probability of outliving. The funding level with no ENLG rider designed to provide acceptable downside risk protection. For more conservative clients, consider funding based on current non-guaranteed charges and a reasonable index crediting rate that targets coverage for life and includes the ENLG rider. This more conservative funding level provides illustrated non-guaranteed coverage for life and a resulting guaranteed coverage that typically will exceed life expectancy. 1 Attained age the policy lapses based on guarantee provided by short-term NLG or ENLG if elected 2 Probability of outliving the lapse age based on M Financial Group s high net worth mortality experience 3 Attained age the policy lapses based on current charges and stated index crediting rate 9 Competitive Intelligence Report Pacific Life's New IUL Products