Making Sense Of Indexed Universal Life Insurance

Transcription

1 Making Sense Of Indexed Universal Life Insurance Stephan Mitchell Competition Analyst, Strategic Marketing Pacific Life Insurance Company MKTG-1081 For Producer Use Only. Not For Use With The Public.

2 This presentation is designed to provide introductory information in regard to the subject matter covered. Neither Pacific Life nor its representatives offer legal or tax advice. Your clients should consult their attorney and tax advisor as to the applicability of this information to their specific circumstances and for complete up-to-date information concerning federal and state tax laws in this area. Pacific Life Insurance Company is licensed to issue individual life insurance and annuity products in all states except New York. Product availability and features may vary by state. Product and rider guarantees are backed by the financial strength and claims-paying ability of Pacific Life. Pacific Life insurance Company's individual life insurance products are marketed exclusively through independent third-party producers, which may include bank affiliated entities. Standard & Poor s, S&P, S&P 500, Standard & Poor s 500 and 500 are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Pacific Life Insurance Company. The Product is not sponsored, endorsed, sold or promoted by Standard & Poor s and Standard & Poor s makes no representation regarding the advisability of purchasing the Product. Non-guaranteed elements are not guaranteed by definition. As such, Pacific Life Insurance Company reserves the right to change or modify any non-guaranteed element. This right to change non-guaranteed elements is not limited to a specific time or reason. The policy does not directly participate in any stock or equity investments. Failure to maintain the policy to maturity may result in no participation in the equity index. Investment and Insurance Products: Not a Deposit Not FDIC Insured Not Insured by any Federal Government Agency No Bank Guarantee May Lose Value Pacific Life Insurance Division Address: 45 Enterprise, Aliso Viejo CA (800) * Lifeline.PacificLife.com For Producer Use Only. Not For Use With The Public. Slide 2 of 31

3 IUL Value Proposition Indexed Return S&P % -4.44% % % % % % 17.32% % 12.67% % 5.76% % 12.00% % 2.98% % % % 28.27% 5.67% -0.14% For Producer Use Only. Not For Use With The Public. Slide 3 of 31

4 IUL Jargon Indexes Hedging Index Measurement Participation (Par) Rate Growth Cap (Cap) Floor Lookback For Producer Use Only. Not For Use With The Public. Slide 4 of 31

5 Pacific Life Indexed Account Options 1-Year Account Index S&P 500 Crediting Method (Without Dividends) 1-Year Annual Point-to-Point 2-Year Account S&P 500 (Without Dividends) 2-Year Annual Point-to-Point 5-Year High Par Account S&P 500 (Without Dividends) 5-Year Annual Point-to-Final- Year-Average 1-Yr Int l Account Hang Seng, Dow Jones EuroSTOXX, MSCI Emerging Markets 1-Year Annual Point-to-Point (weighted) Par Rate (current) 100% 100% 115% 100% Par Rate (guaranteed) 100% 100% 105% 100% Current Growth Cap 13% 32% None 13% Guaranteed Growth Cap 3% 6%* 15%* 3% Annual Guaranteed Interest Rate (Floor) 0% 0% 0% 0% Default Illustrated Rate 7.75% 8.50% 9.50% 7.25% For Producer Use Only. Not For Use With The Public. Slide 5 of 31

6 Hedging For Producer Use Only. Not For Use With The Public. Slide 6 of 31

7 For Producer Use Only. Not For Use With The Public. Slide 7 of 31

8 For Producer Use Only. Not For Use With The Public. Slide 8 of 31

9 For Producer Use Only. Not For Use With The Public. Slide 9 of 31

10 Index Point-to-Point Measurement: An Example /15/09 $ /15/10 $ % % Par: % 13% Cap: % % Floor: N/A Index Credit: % This graph is only intended to demonstrate the mechanics of an indexed universal life insurance policy, and is not a prediction of how IPEP or PIA3 might have operated had it existed over the period depicted above. The actual historical growth cap and growth floor of an indexed life insurance product existing over the period depicted above may have been higher or lower than assumed, and likely would have fluctuated subject to product guarantees. S&P Data Source: Bloomberg. For Producer Use Only. Not For Use With The Public. Slide 10 of 31

11 For Producer Use Only. Not For Use With The Public. Slide 11 of 31

12 For Producer Use Only. Not For Use With The Public. Slide 12 of 31

13 Index Point-to-Point Measurement: An Example /15/07 $ /15/08 $ % 100% Par: % 13% Cap: N/A Floor: 0% Index Credit: 0% 600 This graph is only intended to demonstrate the mechanics of an indexed universal life insurance policy, and is not a prediction of how IPEP or PIA3 might have operated had it existed over the period depicted above. The actual historical growth cap and growth floor of an indexed life insurance product existing over the period depicted above may have been higher or lower than assumed, and likely would have fluctuated subject to product guarantees. S&P Data Source: Bloomberg. For Producer Use Only. Not For Use With The Public. Slide 13 of 31

14 For Producer Use Only. Not For Use With The Public. Slide 14 of 31

15 Hedging Takeaways Principal Risk Charges Transparency Profit Neutral? Bond Yields Hedge Prices Credit Risk For Producer Use Only. Not For Use With The Public. Slide 15 of 31

16 Historical Performance / Illustrated Rates (Lookback) For Producer Use Only. Not For Use With The Public. Slide 16 of 31

17 S&P 500 Index, Monthly Closing Price, 1945-Present NOTE: All the Standard & Poor s index data used in the following slides was obtained from Bloomberg and analyzed by actuaries in our Life Insurance Product Design department. The data was collected in January 2009 and covers the period September 1, 1945 through December 31, For Producer Use Only. Not For Use With The Public. Slide 17 of 31

18 Historical Rates of Return and Default/Maximum Illustrated Rates 1 Year Int'l 2 Yr High Par Average 8.01% 7.41% 8.82% 10.12% 90% Confidence 7.18% 6.29% 7.30% 7.52% 25%Confidence 8.49% 8.05% 9.77% 11.55% Default Rate 7.75% 7.50% 8.50% 9.50% Maximum Rate 8.25% 8.00% 9.00% 10.00% This graph is only intended to demonstrate the mechanics of an indexed universal life insurance policy, and is not a prediction of how IPEP or PIA3 might have operated had it existed over the period depicted above. The actual historical growth cap and growth floor of an indexed life insurance product existing over the period depicted above may have been higher or lower than assumed, and likely would have fluctuated subject to product guarantees. S&P Data Source: Bloomberg. For Producer Use Only. Not For Use With The Public. Slide 18 of 31

19 Cap and Illustrated Rates, Indexed Account Options with 1-Yr Pt-to-Pt S&P % Par Rate Union Central Allianz Foundation Lincoln Benefit LSW Provider ING Phoenix Minnesota Protector Lincoln Financial Hartford AXA Equitable WRL PIA III Penn Mutual American National LSW Paragon Allianz Momentum North American Builder Midland XL DB OM Life Minnesota Eclipse Midland XL-CV3 7.00% 7.07% 8.00% 7.10% 7.83% 7.50% 7.53% 8.00% 7.50% 7.55% 7.45% 7.75% 8.14% 7.85% 8.20% 7.98% 8.20% 8.20% 10.00% 10.00% 8.75% 8.86% 8.60% 11.00% 11.00% 11.50% 12.00% 12.00% 12.00% 12.00% 12.00% 12.50% 13.00% 13.00% 13.00% 13.50% 13.50% 14.00% 14.00% 15.00% 15.00% 15.00% Illustrated Rate Cap 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00%

20 Setting the Cap Policy Charges Company Discretion Options Prices Bond Yields For Insurance Professional Use Only. Not For Use With The Public. Slide 20 of 31

21 Union Central ING Lincoln National Columbus Life Phoenix Life Pacific Life National Life Lincoln Benefit Life Life of the Southwest Aviva (Indianapolis Life) Aviva (AmerUs Life) American General Western Reserve North American Co. Penn Mutual Midland National OM Financial Life Minnesota Life Allianz Life Transamerica 2.0% 3.5% 1.0% 4.0% 4.0% 3.0% 3.0% 4.0% 3.0% 4.0% 4.0% 0.0% 0.0% 3.0% 4.0% 4.0% 1.0% 0.0% 4.0% 0.0% 8.5% 10.0% 11.5% 11.5% 12.5% 12.5% 14.0% 14.0% First Generation IUL Products: Current and Guaranteed Cap Rates at Issue 17.0% 17.0% 19.0% Guaranteed Cap Current Cap ( ) 21.0% For Insurance Professional Use Only. Not For Use With The Public. Slide 21 of 31

22 Union Central ING Lincoln National Columbus Life Phoenix Life Pacific Life National Life Lincoln Benefit Life Life of the Southwest Aviva (Indianapolis Life) Aviva (AmerUs Life) American General Western Reserve North American Co. Penn Mutual Midland National OM Financial Life Minnesota Life Allianz Life Transamerica 8.5% 10.0% 11.5% 11.0% 10.5% 10.5% 11.0% 11.0% 11.0% 10.0% 10.0% 10.5% 12.5% 12.5% 13.0% 11.5% 13.0% 14.0% 12.5% 13.0% 15.0% 14.0% 14.0% 17.0% 18.0% First Generation IUL Products: Cap Rates at Issue vs Cap Rates Today 17.0% 17.0% 19.0% 21.0% Cap Rate Today Current Cap Cap ( ) Rate For Insurance Professional Use Only. Not For Use With The Public. Slide 22 of 31

23 Union Central ING Lincoln National Columbus Life Phoenix Life Pacific Life National Life Lincoln Benefit Life Life of the Southwest Aviva (Indianapolis Life) Aviva (AmerUs Life) American General Western Reserve North American Co. Penn Mutual Midland National OM Financial Life Minnesota Life Allianz Life Transamerica 10.0% 10.5% 11.0% 11.0% 11.0% 11.0% 10.5% 10.5% 10.0% 10.5% 13.0% 11.0% 11.5% 11.0% 11.0% 10.0% 12.5% 13.0% 13.0% 11.5% 14.0% 13.5% 13.0% 13.0% 13.5% 13.5% 12.5% 15.0% 14.0% 13.0% 17.0% First Generation Current Cap Rates vs New Product Cap Rates 15.0% 15.0% 15.0% 18.0% New P Cap Rate Today New Product Cap Current Cap ( ) For Insurance Professional Use Only. Not For Use With The Public. Slide 23 of 31

24 The 2% Floor Club 13% Floor Cap 2% Penn Union Central For Internal Use Only. Not For Use With Producers or the Public. Slide 24 of 31

25 The 2% Floor Club 13% 10% Floor Cap 2% 2% Penn Union Central For Internal Use Only. Not For Use With Producers or the Public. Slide 25 of 31

26 For Internal Use Only. Not For Use With Producers or the Public. Slide 26 of 31

27 UL Interest Crediting Rates, Credited Rate 1/1/1991 Credited Rate 2/1/2011 Guaranteed Interest Rate Year Guar-antee Reached Excess Crediting Rate Carrier Product Pacific Life Versa-Flex* 8.75% 4.45% 4.00% N/A 0.45% Phoenix FlexLife 9.00% 4.25% 4.00% N/A 0.25% John Hancock UL-I 8.50% 4.15% 4.00% N/A 0.15% GenAm (MetLife) UL to A % 5.10% 5.00% N/A 0.10% New York Life Target Life II 9.45% 4.50% 4.50% % SunLife LifeMaster % 4.00% 4.00% % Aetna (Lincoln National) UL % 4.50% 4.50% % American General (AIG) Lifestyle Plus 8.50% 4.50% 4.50% % Chubb (Lincoln National) UltraSpan % 4.50% 4.50% % CIGNA (Lincoln National) Continuum 9.50% 4.00% 4.00% % CT Mutual (MassMutual) Regular Series UL 8.00% 4.00% 4.00% % First Colony (GE) Life One Plus 8.55% 4.00% 4.00% % Hartford Solution % 4.00% 4.00% % Jeff. Pilot Fin l (Lincoln) Ultima % 4.50% 4.50% % Lincoln Benefit Ultra Achiever 8.75% 4.50% 4.50% % Manulife (Hancock) Fin l Performer 8.35% 4.00% 4.00% % MetLife Flex Prem UL 8.25% 4.00% 4.00% % New England (MetLife) ULCCL 9.00% 4.50% 4.50% % Principal Universal Life 8.25% 4.00% 4.00% % Prudential Appreciable Life 8.00% 4.00% 4.00% % Security CT (ING) Ultra Design 8.75% 4.50% 4.50% % Security Life (ING) UL % 5.00% 5.00% % Southland (ING) UL-XL Series 8.50% 4.50% 4.50% % Transamerica (AEGON) Assured Life % 4.00% 4.00% % Travelers (MetLife) ExceLife 8.50% 4.00% 4.00% % *Policy Form No ; product is no longer for sale. For Insurance Professional Use Only. Not For Use With The Public. Slide 27 of 31

28 Are There Higher Expenses Within? Indexed UL Policies? For Insurance Professional Use Only. Not For Use With The Public.

29 Policy charges are as important as policy credits in the performance of life insurance contracts. When making a comparison of indexed UL charge structures, traditional UL products are the best benchmark for determining reasonable policy expenses. With some notable exceptions, mortality charges inside indexed UL products are, on average, meaningfully higher than traditional UL products. Consequently, indexed UL contracts require better return performance than their traditional UL counterparts to offset the increased cost structure. Trusts & Estates,, Sep Do Your Homework on Indexed Universal Life Insurance, emphasis supplied For Insurance Professional Use Only. Not For Use With The Public. Slide 29 of 31

30 19,000 17,000 15,000 Level Pay Solves, Fixed Account Aviva (4.75%) AXA (3.50%) LSW (5.50%) Solved for Premium 13,000 11,000 Minnesota (4.0%) Penn (5.25%) Lincoln Fixed (3.90%) North American Midland (4.50%) (4.50%) Hartford (4.50%) ING Global (4.75%) 9,000 7,000 5,000 5,000 7,500 10,000 12,500 15,000 17,500 20,000 22,500 25,000 Target Premium For Insurance Professional Use Only. Not For Use With The Public. Slide 30 of 31

31 19,000 17,000 15,000 Level Pay Solves, Fixed Account Aviva (4.75%) AXA (3.50%) LSW (5.50%) Solved for Premium 13,000 11,000 Minnesota (4.0%) North American Lincoln Fixed (3.90%) (4.50%) Midland (4.50%) Hartford (4.50%) ING Global (4.75%) Penn (5.25%) PIA3 (5.35%) 9,000 7,000 5,000 5,000 7,500 10,000 12,500 15,000 17,500 20,000 22,500 25,000 Target Premium For Insurance Professional Use Only. Not For Use With The Public. Slide 31 of 31