1. 2014 Society of Actuaries Annual Meeting & Exhibit
Annuity Hot Topics
106PD
2014 Society of Actuaries Annual Meeting & Exhibit
Timothy C. Pfeifer, FSA, MAAA
Pfeifer Advisory LLC
October 28, 2014

2. Focus is on four product types:
Agenda
Focus is on four product types:
Fixed Indexed Annuities
Variable Deferred Annuities
Deferred Income Annuities
Contingent Deferred Annuities
The Approach:
TODAY
TOMORROW
Q&A:
Include SPIAs and DRFAs

3. Fixed Indexed Annuities
TODAY
Market Dominance
Two carriers selling uncapped, managed volatility indexes
Spawning Imitators
Spread-based products
Income-Focused Products
Defined benefit approaches, stacked benefit bases
Fine-tuning niche competitiveness
Benefits relative to DIA, SPIA
Shifting Distribution
Greater percentage of sales from banks, wires, B/Ds
31% (1st half, 2014), 17% (2013)
Products simpler and shorter SC

4. Fixed Indexed Annuities
TOMORROW
Absent a very large increase in interest rates, will continue to take share from DRFAs and VAs
Income story will still predominate, but interesting indexes will make for more compelling accumulation stories
Penetration of FIAs into banks, wires, B/Ds will serve as impetus to pull historical FIA carrier naysayers into market
New FIA designs will borrow from the mutual fund, ETF, 401(K) worlds

5. Variable Deferred Annuities Continued Steps to De-Risk
TODAY
Continued Steps to De-Risk
In Addition...
Volatility Controlled Funds
Withdrawal Benefits a Function of Interest Rates, Volatility
Investment-Oriented VA
Large Subaccount Menu
Alternative Assets
Few Guarantees
Premium Limitations
VA Buyback Programs
Guaranteed Living Benefits Re-direct to GMAB
Some Reinsurance Capacity

6. Variable Deferred Annuities
TOMORROW
Fewer Manufacturers Due to Earnings/Balance Sheet Volatility
Loss of Market Share. Fewer 1035s Due to Rich Inforce Guarantees
Rise of Privately-Placed Variable Annuities and Variable Life
Continued Evolution of Buyback programs – Dial-Downs, Cost Reductions
Carriers Seek Portfolio Balance of IOVAs with Lighter Guaranteed VAs

7. Deferred Income Annuities Substantial Sales Growth
TODAY
Substantial Sales Growth
Carriers in Market
1st half 2014 sales reached $1.3 billion
At least 12 active sellers
Three quarters of business sold via captive channels
Full year 2013 sales finished at $2.2 billion
Top 3 account for 85%
DIA vs. SPIA
Product Focus
Similar pricing mortality
Limited liquidity, flexibility
Similar commissions
QLAC status promising
Some carrier overlap
Focus on income competitiveness

8. Deferred Income Annuities More Product Diversification/Differentiation
TOMORROW
More Product Diversification/Differentiation
Liquidity
Linkage with other coverages
Distinct pricing parameters as experience data emerges
Indexing/Inflation component
Market Expansion
401(k) Market
Packaging with VAs, other products
New Distribution

9. Contingent Deferred Annuities
TODAY
“ Essentially a stand-alone GLWB policy that wraps non-annuity assets and ensures guaranteed lifetime income”
Covers certain ETFs and Mutual Funds
Current market is very thin
Only a few insurers
Starting to gain traction
Clearly viewed as a defensive product by many
Main hurdle is regulation
Finally recognized as a annuity contract
NAIC workgroup reviewing CDAs across all current annuity regulations
Some states won’t yet approve, but log jam may be breaking
Pricing nuances of CDAs

10. Contingent Deferred Annuities Regulatory Clarification
TOMORROW
Regulatory Clarification
Product Design
Will play out over next couple of years
State approvals will open up
Some new law will need to be created
Will not be limited to ETF and Mutual Fund coverage
401(k) market will be popular
Designs will be simpler than VA GLWBs, but may not be cheaper
Distribution
RIAs are clear, untapped channel
Some broker/dealers would like to de-emphasize annuities
An annuity license still required to sell CDAs
Bank area is a wild card

11. Timothy C. Pfeifer, FSA, MAAA
Thank You!
Timothy C. Pfeifer, FSA, MAAA