1. Life Product Development & Support
Winds of Change
In the Universal Life Market
Tommy Smoot
Life Product Development & Support
November 2012

2. 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.

3. 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.

4. The World Today: Top 15 Individual Life Insurers
Source: LIMRA, year end *Ranks and percentages based on annualized premium

5. New York Life 1 51% 35% Mutual Northwestern 2 78% 9% Lincoln National
Carrier
Rank
% of Business WL
% of Business UL/VUL
Corporate Structure
New York Life 1
51%
35%
Mutual
Northwestern 2
78% 9%
Lincoln National 3 0%
90%
Stock
MetLife 4
24%
50%
State Farm 5
31%
Transamerica 6
25%
53%
John Hancock 7 3%
89%
Pac Life 8 2%
97%
MHC
Axa 9
83%
Mass Mutual 10
75%
14%
ING 11
Prudential 12
45%
Guardian 13
82%
10%
AIG 14 5%
Hartford 15 1%
91%

6. 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 Ranks and percentages based on annualized premium

7. The World Today: Lots of Action, Not All Good-I
Carrier
Key Actions Since 2009
New York Life
UL SG changes
PUA limits
DIR down 31bps since 2009
Northwestern
UL SG
DIR down 65 bps since 2009
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
UL SG price increase and limits
Rumored for sale
Other Big Happenings:
SunLife out of Life Market
Hartford out of Life Market
Hancock exits VA space
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

8. The World Today: Lots of Action, Not All Good-II
Carrier
Key Actions Since 2009
John Hancock
UL SG price increases; no SG in NY
Indexed UL introduced
Pac Life
Indexed UL expansion
Axa
Mass Mutual
Dividend down 60 bps
ING
UL SG guardrails
Rumored for sale
Prudential
Indexed UL Introduced
AIG
UL SG & Indexed UL Expansion
Hartford
Exiting Individual Life Business
Other Big Happenings:
SunLife out of Life Market
Hartford out of Life Market
Hancock exits VA space
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. 8

9. Not to be used with the public.
The World Today: Indexed UL Rising
Sales of IUL have continuously increased since the introduction of the product in 1996
23% 5 Year CAGR
Source: AnnuitySpecs.com’s Indexed Sales & Market Report
For Internal Use Only.
Not to be used with the public. 9 9 9

10. The World Then vs. Now: Top 15 Individual Life Insurers
1982
Carrier
Rank*
Corporate Structure
What happened?
Prudential 1
Mutual
Demutualized
New York Life 2
Equitable 3
Acquired – AXA
MetLife 4
Northwestern 5
John Hancock 6
Merger– Manulife
Mass Mutual 7
MONY 8
Merger – AXA
Conn. Mutual 9
Merger– Mass
New England 10
Bought – Met
ManuLife 11
Merger – JH
American Gen 12
Stock
Bought - AIG
American Nat. 13
Amer. Amicable 14
Bought **
Lincoln 15
Merger - JP
Guardian 30
2011
Carrier
Rank*
Corporate Structure
New York Life 1
Mutual
Northwestern 2
Lincoln 3
Stock
MetLife 4
State Farm 5
Transamerica 6
John Hancock 7
Pac Life 8
MHC
Axa 9
Mass Mutual 10
ING 11
Prudential 12
Guardian 13
AIG 14
Hartford 15
*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

11. The World Then vs. Now: Breakdown of Life Sales
1982
2011 WL
Term WL
Term
INDUSTRY LIFE SALES
$4.9B $12.5B
Source: LIMRA; percentages based on annualized premium

12. 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

13. 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

14. Key Ramification #1: New Products – Universal Life
Market Share by Product
10 Year Treasury Rate
Invention of UL-
E.F. Hutton
10 Yr Treasury Yield
17.5%
7.5%
5.0%
2.5% 0%
15.0%
12.5%
10.0%
% of Sales
Source: LIMRA; Federal Reserve Bank of St. Louis

15. Key Market Force #2: Market Returns
$5,477
CAGR 17.3%
$100
1975
1999
54X
CAGR 17.3%
54X
1975
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:

16. Key Ramification #2: Demutualization & Consolidation
The 1990s and 2000s saw a flurry of demutualizations and mergers
Nationwide* (1997)
MONY (1998)
Manulife (1999)
Transamerica (1999)
MetLife (2000)
John Hancock (2000)
SunLife (2000)
Demutualizations
Prudential (2001)
Principal (2001)
Phoenix (2001)
Equitable (1992)
AEGON merges with Western Reserve (1991)
AXA invests in Equitable (1992)
Allstate Spun Off (1993)
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)
Guardian merges w Berkshire (2001)
AIG buys American General (2001)
MetLife acquires General American (2002)
Manulife/Hancock merger (2003)
Travelers merges with Citi (2002) and acquired by MetLife (2005)
MetLife acquires New England (2006)
Lincoln acquired Jefferson Pilot (2006)
Mergers & Acquisitions
* Life Company IPO. Shares later repurchased
For Internal Use Only.
Not to be used with the public. 16
Source: AM Best Reports

17. Key Ramification #3: New Products – Variable Life
Market Share by Product
Bull Market and Dot Coms
Rise of Variable Life
1,500
1,000
S&P 500 Index
S&P
500 Index
500 10
Source: LIMRA

18. 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
Sources: S&P 500; LIMRA

19. Key Ramification #4: ULSG and Indexed UL
Market Share by Product
UL Secondary Guarantees
Lincoln Invented
Indexed UL is Growing
Source: LIMRA

20. Universal Life: Where We Are Today. . .

21. Universal Life: Key Macro Forces
Interest Rates
Regulatory Pressure Internationally
Regulatory Pressure Domestically – AG38 21

22. Universal Life: Interest Rate Implications
Rates are at all time lows, and there are four paths out 22

23. ULSG Reserves: Interest Rate Implications
Secondary Universal Life (ULSG) requires high levels of reserves per dollar of premium and is highly lapse and interest rate sensitive.
Source: Guardian models: Male, Age 55, Second to Best Risk Class

24. 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.
NYS and NAIC Question AG38
Canadian GAAP & IFRS Exacerbate Issue
Internal Rates of Return on UL SG

25. 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

26. 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

27. Changes to ULSG:Impact to Competitors-I
COMPANY
DATE
DESCRIPTION OF RESTRICTIVE CHANGES
Mass Mutual
JUL 2012
OCT 2012
Increased rates on UL/SUL Guard following increases in January 2012
Will introduce new UL/SUL Guard with premium increases of 5%
New York Life
FEB 2011
Increased premiums for both Custom UL /SUL Guarantee products
Penn Mutual
SEP 2012
Suspended the ENLG rider on the Survivorship Plus IUL product
Announces increases to premiums by 10% / 25% on level / single pays for NLG products for AG 38
John Hancock
JAN/FEB 2012
Increased UL-G 12/SUL-G 12 by 10% and withdrew the products for sales in New York
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.

28. Changes to ULSG: Impact to Competitors-II
COMPANY
DATE
DESCRIPTION OF RESTRICTIVE CHANGES
Aviva
OCT 2012
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
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
Principal
NOV 2012
First year premium cap of $3MM per insured and additional cap of 7 times target premium for UL & SUL products
Protective
Announces it will no longer market products with lifetime guarantees beginning January 2013
And many more, including Prudential, being forced to rapidly raise prices.

29. 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

30. 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

31. 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

32. 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. . .

33. Let’s See What They Did Carrier Rank Corporate Structure Career Agents
What Their CEO Did
New York Life 1
Mutual
Yes
Northwestern 2
Lincoln National 3
Stock
Not Really
IUL
MetLife 4
Yes**
Whole Life
State Farm 5
Transamerica 6 No
John Hancock 7
Pac Life 8
MHC
Axa 9
Mass Mutual 10
ING 11
Prudential 12
Guardian 13
AIG 14
Hartford 15
Quit
Source: LIMRA, year end **Indicates less than 50% of life production from career agents

34. Indexed Universal Life What You Need to Know

35. Question #1 Who was the first major carrier to market IUL?
Transamerica
Aviva
Minnesota Life
Pacific Life

36. 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?

37. Whole Life: Tried and True
Source: Guardian Illustrations. July 2012

38. What is Indexed Universal Life?

39. Indexed UL Rising
Sales of IUL have continuously increased since the introduction of the product in 1996
Over 10% of the market today
23% 5 Year CAGR
Source: AnnuitySpecs.com’s Indexed Sales & Market Report

40. Universal Life: Basic Mechanics
Understanding IUL requires understanding traditional UL. . .
The Client
The Company
(1)
Policy owner pays a monthly or annual premium into the contract
(2)
After upfront charges, premiums are added to the policy’s cash value and earn interest from the General Account
(3)
The company removes the policy cost from the policy’s cash value on a monthly basis

41. Universal Life: Basic Mechanics
Understanding IUL requires understanding traditional UL. . .
The Client
The Company
(1)
Policy owner pays a monthly or annual premium into the contract
(2)
Indexed UL credits interest based on a market index rather than the company’s general account
(3)
The company removes the policy cost from the policy’s cash value on a monthly basis

42. 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
You give up all the earnings above this line…
…to protect against losses below this line

43. Question #2 TRUE or FALSE: Policy Caps are Guaranteed? True False
..but at a very low level…e.g. 3-4%...

44. 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

45. 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%

46. IUL Crediting: Basic Mechanics
Options Budget
100%
Investment
Return
$4,762
Options
Budget
9.54% increase in Index
Source: OWROpinion

47. IUL Crediting: Basic Mechanics
Effect of Options Return
9.524%
Crediting Rate
$9,524
$4,762
$100,000
$95,238
x 1.05 =
Source: OWROpinion

48. Caps and Floors: How They Work
You give up all the earnings above this line…
S&P 500 Index
…to protect against losses below this line
Source:

49. IUL Premium Flow Source: Competitor Illustrations. July 2012
Note: PacLife Indexed Accumulter 4, Male, Best Class Age 40, $1M Face DBO1, 7.25% Credit Rate

50. IUL L121 Premium Policy Collapses @ Age 59 Market Risk/Return
Source: Competitor Illustrations. July 2012
Note: PacLife Indexed Accumulter 4, Male, Best Class Age 40, $1M Face DBO1, 7.25% Credit Rate

51. 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%
11.50% (Jan ’10)
12.25% (Sep ’10)
ING Indexed UL-CV
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.
13.00% (Feb ‘11)
Penn Mutual Acc. Builder
14.00%
13.00% (Oct ‘10)
12.00% (Feb ‘12)
Source: company illustrations and announcements

52. Question #3
TRUE or FALSE: Illustration Lookbacks are prescribed by the NAIC?
True
False

53. 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 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 )
Source: Full Disclosure

54. 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.

55. 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
Scenario 2
No Interest in Select Years
Scenario 3
Scenario 1 Premium
Scenario 2 Interest
Interest Scenario
All Years: 7.75%
Years 1-3: 7.75%
Years 4-6: 0%
Years 5-20: 7.75%
Years 21-24: 0%
Years %
Premium
$8,250
$17,937
Age 100
$1,001,103
$1,000,354
Policy Lapses at Age 83
Source: competitor illustrations as of 11/11

56. Question #4
TRUE or FALSE: Index credit rate returns typically reflect dividends?
TRUE
FALSE

57. Key Levers: Credit Rate Volatility
Source: Competitor Illustrations. July 2012
Note: PacLife Indexed Accumulter 4, Male, Best Class Age 40, $1M Face DBO1, Random Credit Rate

58. 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
Description
For You To Know
Standard Wash Loan
Interest is credited on a fixed rate
Loan rate is typically set at the fixed rate but can have a 25bps to 75bps spread
Most conservative
Indexed Loan
Interest based on indexed return
Loan interest is set at a fixed rate
Some arbitrage
Variable Loan
Interest based on indexed return
Loan interest is set to the Moody’s Corporate Bond Index
Arbitrage
Source: competitor illustrations as of 11/11

59. Opportunities For You. . .

60. Two Key Opportunities
Indexed UL – Counterpunching
Current Assumption UL – Price vs. Value

61. 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

62. 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
..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

63. Enhanced Accelerated Benefit Rider

64. 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: 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

65. 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

66. 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

67. 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).

68. 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.

69. 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%

70. EABR: NAR Available for Chronic Illness
AGE *
% OF NAR
AGE
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.

71. Customized Presentation Available in Navigator Online

72. Customized Presentation Available in Navigator Online