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Overview of Life Insurance Crediting Rates Name Title December, 2013.

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1 Overview of Life Insurance Crediting Rates Name Title December, 2013

2 2 M Financial Group  M Financial Group is one of the nation’s premier financial services design and distribution companies, serving ultra-affluent individuals and Fortune 1000 companies through a network of more than 135 independent Firms.  Independent research suggests that more than 20% of all life insurance sales to ultra-affluent clients in the U.S. are made by M Member Firms. (Source: Spectrem Group)  M Financial was founded in 1978 to change how insurance companies served successful producers with exceptional business.  From the beginning, M Financial has been a community of sharing, entrepreneurship, innovation, and success.  M Financial began with 13 Firms—today there are more than 135 Member Firms in 36 states, Canada, the United Kingdom and more than 600 producers.

3 3 Major Business Lines  Life Insurance ▬ Wealth Transfer / Estate Planning ▬ Executive Benefits ▬ Institutional Market  Individual Disability Income and Long Term Care Insurance  Annuities  Corporate Benefits ▬ Group Life, LTD, and LTC ▬ 401(k)  Wealth Management Life and DI lines are reinsured through M Financial Re.

4  Insurers invest in high-quality bonds and mortgages (Aaa and Baa)  New money fixed income rates have generally declined for 25+ years  Portfolio yields lag new money rates and continue to drop  Continued downward pressure on UL crediting rates which are tied to portfolio yields  Portfolio crediting rates will continue to drop even if new money rates gradually increase due to lag factor UL Crediting Rate Considerations 4

5 Decline In Historical New Money Rate 5 Note approximate 100 bps rate increase over last year

6 Rolling Average Represents Portfolio Yield, Lags New Money, Continues To Drop 6

7 Strong Correlation Between UL Crediting Rates And 5 Year Rolling Average 7

8  The current benchmark new money rate is approximately 50 bps below the portfolio yield benchmark ▬ Carriers have been shifting asset allocations to Baa in order to obtain additional yield ▬ Carriers have also been investing further out on the yield curve in order to obtain yield  The portfolio yield and crediting rates will continue to merge to the new money rate Continued Downward Pressure On Crediting Rates Even With Recent Increase In New Money Rates 8

9 There Will Be Continued Portfolio Yield Drops Even If New Money Rates Increase Due To Lag Factor 9 Assumes new money rate increases 50 bps in next year Projected portfolio yield continues to drop for two years before increasing Maximum projected cumulative drop is 40 bps

10  Carrier Actions: current and guaranteed crediting rate reductions and premium restrictions  New Business Policyholder Implications ▬ Fund appropriately (i.e., with conservatism) ▬ Run downside scenarios (i.e., lower crediting rates) to assess appropriate funding  In-Force Business Policyholder Implications ▬ Perform annual reviews ▬ Use in-force illustrations to assess impact of lower crediting rates (include scenario testing) ▬ Take appropriate action to keep the policy on track ● Additional premiums ● Reduce face amount ● 1035 exchange Declining Crediting Rate Implications 10

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