Solutions That Leave an Impression In the Wholesale

Solutions That Leave an Impression In the Wholesale Brokerage World For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Universal Life Insurance – A broad discussion of how companies generally Design Indexed Universal Life Insurance policies Michael Pinkans, CFA Senior Vice President – Zenith Marketing Group, Inc. For Agent Use Only / Not for Public Distribution cn 57038122010

What We’ll Cover History of Indexed Universal Life (IUL) What is Indexed Life? Regulatory environment Indexed Life mechanics Company Positioning/Gotcha’s Q&A For Agent Use Only / Not for Public Distribution cn 57038122010

History of IUL Developed in mid-90’s as EIUL Sales slow until 2002 – Accelerated since ‘ 04 – Over 30 companies – About $500 million sales (IA’s about $25 B) Why? – VUL below 0% returns? – No variable licensing – Design features – variable loans – Declining WL dividend scales and UL crediting rates – Companies with IA’s – easier transition For Agent Use Only / Not for Public Distribution cn 57038122010

Cautions Producers may have migrated to IUL to avoid securities licenses – “next best thing” – But, IUL is closer to fixed UL, not VUL Goal of IUL is to “beat” current assumption UL rates by 150 -200 bps long term For Agent Use Only / Not for Public Distribution cn 57038122010

Sales Applications Anytime CASH ACCUMULATION/DISTRIBUTION is important – Pension Max, College Funding, Personal Retirement, ROTH Alternative Not as a term alternative – that’s the UL NLG marketplace Not useful in an ILIT For Agent Use Only / Not for Public Distribution cn 57038122010

What is Indexed Life? Combines features & benefits of traditional UL but uses a different crediting method for determining interest Interest credited is linked (in part) to movement of a stock market index over a period of time Potential to earn interest based on increases, if any, in an equity index, while offering minimum interest rate guarantees (may be 0%, 1%, 2% or slightly higher) Potential for higher average crediting rates than more traditional UL For Agent Use Only / Not for Public Distribution cn 57038122010

What is Indexed Life? So: Potential for greater cash value & death benefit than more traditional UL More cash value protection against market declines than VUL For Agent Use Only / Not for Public Distribution cn 57038122010

What is Indexed Life? IT IS NOT… IT IS NOT an investment in the stock market and does not directly participate in any stock, equity or bond investments IT IS NOT the client buying or participating directly in the index IT IS NOT a policy where cash value is based upon performance of client selected sub-accounts (variable life) Does NOT offer FULL Upside Potential For Agent Use Only / Not for Public Distribution cn 57038122010

What is Indexed Life? A Middle Ground… Traditional UL Indexed Life Not better… different For Agent Use Only / Not for Public Distribution cn 57038122010 VUL

Why The Time May Be Right For IUL Current focus on accumulation and distribution Pricing changes to no lapse guarantee UL and term rates Customers more comfortable with an index Unattractive rates on current assumption UL and WL For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed UL Versus Indexed Annuities Will be differences in how contract works Customers must understand the guarantees in each contract – Must stronger in annuities • Lower caps and participation rates For Agent Use Only / Not for Public Distribution cn 57038122010

Regulatory Environment NASD 05 -50 Is an Equity Indexed Annuity a Security? Is an Indexed Life? – Depends in part on how the product is positioned, presented and sold Some B/D’s don’t allow the sale; others have approved lists For Agent Use Only / Not for Public Distribution cn 57038122010

Regulatory Environment Inappropriate Sales Language Actual claims mentioned in NASD 05 -50 – “What if the market goes down and you would lose nothing? The market goes up- you gain? ” – “A WIN/WIN Investment vehicle!” – “Growth Potential without Market Risk. ” For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Interest Crediting Potential to earn interest based in part on the move of an index such as: Standard & Poor's 500® Composite Stock Price Index Dow Jones Industrial Average Index NASDAQ-100 Lehman US Aggregate US Treasury Indexes Hang Seng Index Standard & Poor’s®, ” " S&P®, " “S&P 500®, ” “Standard & Poor’s 500, ” and “ 500” are trademarks of The Mc. Graw-Hill Companies, Inc. and have been licensed for use by Security Life of Denver Insurance Company. No product is sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing any product. Hang Seng Index – An index of the largest and most liquid stocks listed on the Stock Exchange of Hong Kong. It does not reflect dividends payable on the underlying stocks. For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Interest Crediting The index is looked at on a certain date; that is the beginning of that particular index segment period At end of index segment period: – if index is higher, the policy owner can earn additional interest paid by the insurance company – if the index stays flat or declines, cash value is still credited with a minimum guaranteed interest rate Index Segment Period Jan 1 For Agent Use Only / Not for Public Distribution cn 57038122010 Dec 31

Indexed Life Mechanics Policy Blocks Traditional UL premiums can occur at any time – What if indexed universal life premiums come in the middle of the index period? Premium blocks – Portion of account value applied to a particular crediting period For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Interest Crediting The values of an index vary daily & are not predictable Cash value growth does not reflect dividends on the index Cash value will likely not reflect entire increase of index For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Indexing Methods Point to Point (Annual Reset Crediting) – Most common Index Credit May use one or a combination of the following crediting methods to determine amounts credited to the cash value: – Participation rate – Rate Spreads or Asset Fees – Caps For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Point to Point Participation Point to Point: time period over which index is being measured. Participation: percentage that determines how much of the index’s increase is reflected in the indexed interest – Acts as one factor in determining a ceiling on crediting rate of the policy For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Point to Point Participation 100% Participation Index increases 12% 100% Participation Client gets 12% index interest – Subject to any other limits The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Point to Point Participation 100% Participation Index decreases 1. 5% Minimum Guarantee Client gets minimum guarantee The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Point to Point Participation 50% Participation Index increases 12% 100% Participation 50% Participation Client gets 6% index interest – Subject to any other limits The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Point to Point Participation with Cap: upper limit of index increase that can be applied to the policy Often used in conjunction with a participation rate Establishes maximum amount of increase in the index that can be factored into index interest For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Point to Point Participation with Cap 50% Participation Index increases 30% increase with 50% participation is 15% 50% Participation 10% Cap applied to 15% Client gets 10% index interest – Subject to any other limits The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Monthly Average Index Average of index from point "A" through point "B“ Average Rate Often monthly, but can be annual over multiple years The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Which is better? Question: With 12% increase in an index, is client better off A lower 50% participation rate and high 15% cap? – 50% of 12% = 6% 15% Cap 50% Participation A high 100% participation rate and a lower 10% cap? – 100% of 12% = 12% capped @ 10% Cap 100% Participation The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Bringing it all together Year 1 – Index increases Hypothetical example – 50% Participation rate – 12% cap – 1% minimum guarantee – – Cash Value = $1, 000 Index increases 20% increase x 50% Part. Rate = 10% End of year 1 Cash Value = $1, 100 • Less any fees and charges For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Bringing it all together Year 2 – Index Decreases Hypothetical example continued – 50% Participation rate – 12% cap – 1% minimum guarantee – Cash Value = $1, 100 • Ignoring any fees and charges – Index drops 10% – 1% minimum guarantee credited to policy – End of year 2 Cash Value = $1, 111 • Again, less any fees and charges For Agent Use Only / Not for Public Distribution cn 57038122010

Other Crediting Strategies If not point-to-point then some form of averaging Can be daily, monthly, or annual basis (multiyear) Each day, or month, or year is a factor in the index creating value Averaging more useful in a volatile environment – Overall point-to-point outperforms For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Life Mechanics Illustrated Rate Can be a set rate however it’s usually determined by looking back at past history of Index over a certain period. – Can be confusing • Does 8% always beat 7% illustrated rate? For Agent Use Only / Not for Public Distribution cn 57038122010

Company AIG American General Life Policy Platinum Provider Ultra 500 Elite Index UL 2004 AIG Elite Global IUL Allianz Life Gen. Dex II AIG American General Life Aviva Life and Annuity Co. Aviva. Indianapolis Life Aviva Life and Annuity Co. of NY Bankers Life Conseco Life ING "Security Life of Denver" Life Insurance Company of the SW Lincoln Benefit Life Indexed Crediting Rate Utilized Level DB Current Accum Guaranteed Crediting Rate Value Year 5 Level DB Current CV (net) Year 5 Level DB Current Accum Value Year 30 Level DB Current Accum Value Year 40 Level DB IRR Current Accum Year 40 Current Level Death Benefit Year 40 Current Increasi ng DB Year 40 IRR Current Increas ing DB Year 40 6. 58% 2. 00% 29, 615 21, 365 532, 336 1, 080, 831 5. 50% 1, 091, 64 0 808, 510 4. 35% 7. 16% 1. 00% 29, 692 21, 442 585, 902 1, 242, 034 6. 04% 1, 254, 45 4 931, 768 4. 92% 10. 20% 2. 50% N/R N/R 9. 29%* 2. 00% 28, 842 16, 942 905, 789 2, 355, 893 8. 42% Lifetime Builder 7. 95% 2. 00% 29, 890 21, 424 663, 387 1, 568, 884 6. 92% Advantage Builder 7. 55% 2. 00% 37, 271 28, 334 695, 181 1, 565, 613 6. 91% Vista Advantage 7. 55% 2. 00% 37, 271 28, 334 695, 181 1, 565, 613 6. 91% Vista Lifetime 7. 95% 2. 00% 29, 890 21, 424 663, 387 1, 568, 884 6. 92% 2, 379, 45 2 1, 600, 26 1 1, 596, 92 5 1, 600, 26 1 1, 615, 96 5 1, 023, 34 8 1, 209, 24 2 1, 023, 34 8 Lifetime Builder 7. 95% 2. 00% 29, 890 21, 527 663, 387 1, 568, 884 6. 92% 1, 600, 26 1 0 N/A Empire Solution UL 7. 55% 2. 00% 37, 271 28, 334 695, 181 1, 565, 613 6. 91% 1, 596, 92 5 1, 209, 24 2 5. 93% 3. 12% 3. 00% 31, 706 22, 926 262, 058 430, 105 1. 68% 421, 732 0 N/A 4. 80% 2. 00% 31, 500 21, 249 406, 988 777, 014 4. 19% 784, 785 320, 693 0. 32% 7. 36% 3. 00% 30, 175 528, 351 1, 143, 688 5. 72% 1, 155, 12 5 653, 464 3. 48% Secure. Plus Paragon 9. 70% 2. 50% 29, 143 22, 786 777, 193 1, 992, 938 7. 81% 2, 012, 86 7 819, 313 4. 41% Ultra Index 8. 00% 2. 00% 36, 721 27, 726 717, 528 1, 603, 322 7. 00% 1, 619, 35 6 1, 038, 77 7 5. 35% 30, 249 23, 976 613, 732 1, 353, 431 6. 36% 1, 366, 96 6 966, 408 5. 06% 3. 00% 35, 092 27, 782 758, 182 1, 858, 951 7. 55% 1, 091, 63 2 5. 54% 3. 00% 30, 712 21, 179 712, 541 1, 748, 393 7. 33% 875, 934 4. 67% Innovative Life EIUL Asset Builder Plus 100% EIAV Indexed Strategic Accumulator UL Lincoln National Life. Elements(sm) Life IUL 1. 00% up to attained age 8. 00% 100; 3. 00% thereafter. Midland XL-DB 8. 40% National Life Midland For Agent Use Only / Not for Public Distribution XL-CV 8. 40% National Life cn 57038122010 Midland XL-EC 8. 4 National Life 1, 877, 54 1 1, 765, 87 6 7. 03% 5. 29% 5. 93% 5. 29%

12/31 Published Date S&P 500 Historical Performance Date S&P 500 Value Change Value % Change 12/31/97 970. 43 +31. 0% 12/31/84 167. 25 12/31/85 211. 25 +26. 3% 12/31/98 1229. 23 +26. 7% 12/31/86 242. 17 +14. 6% 12/31/99 1469. 25 +19. 5% 12/31/87 247. 08 +2. 0% 12/31/00 1320. 28 -10. 1% 12/31/88 277. 72 +12. 4% 12/31/01 1144. 89 -13. 0% 12/31/89 353. 40 +27. 3% 12/31/02 879. 82 -23. 4% 12/31/90 330. 22 -6. 6% 12/31/03 1111. 92 +26. 4% 12/31/91 417. 09 +26. 3% 12/31/04 1211. 92 +9. 0% 12/31/92 435. 71 +4. 5% 12/31/05 1248 +3. 0% 12/31/93 466. 45 +7. 1% 12/31/06 1408 +12. 8% 12/31/94 459. 27 +1. 5% 12/31/07 1485 +5. 5% 12/31/95 615. 93 +34. 1% 12/31/08 903 -33. 8% 12/31/96 740. 74 +20. 3% 12/31/09 1115 +23. 5% Past performance is not indicative of future performance. For Agent Use Only / Not for Public Distribution cn 57038122010

Special Features - IUL Variable or Synthetic Loan amount does not reduce the Indexed Account Allows all indexed dollars to Participate in Performance of S&P 500 – Allows the opportunity for the S&P 500 to outperform the VLR being charged. (Loan interest is charged annually. ) Heavily marketed by some carriers – More loans = more cash value accumulation – Easy to out-illustrate the competition For Agent Use Only / Not for Public Distribution cn 57038122010

Sales Applications Anytime cash accumulation and/or distribution is important Premium financing Minimum premium to solve for 0 cash – risky – Should really overfund contract – Have a longer time horizon – Be willing to give up some guarantees for upside potential – Absolutely want some guarantees though For Agent Use Only / Not for Public Distribution cn 57038122010

Target Customers Generally under age 65 Longer term time horizon Moderate risk tolerance – Willing to assume more than UL risk but less than VUL risk Moderate to heavy funding capability For Agent Use Only / Not for Public Distribution cn 57038122010

Competitive Landscape Performance Drivers Illustrated/Indexed Rate – Over 9% currently Loan structure Crediting strategies – Caps – Participation Rates – Multiple Indices Guaranteed Rates Unique Features/Benefits/Riders For Agent Use Only / Not for Public Distribution cn 57038122010

Common Questions If the participation rate is 100% and the cap is 12% and the index returns 25% didn’t the insurance company make a lot more money? – No, the insurance company matches assets & liabilities and buys options on the index (buying an option providing for a possible 12% payout). The seller of the option made the excess return. The insurance company made its expected return on investment – nothing more. For Agent Use Only / Not for Public Distribution cn 57038122010

Common Questions Is a variable/synthetic loan bad? – No, but it must be disclosed to the customer with the pros/cons. • Pros – customer bought into the indexing strategy when buying policy. Strategy may still make sense. Monies stay in indexed account. Will out illustrate any other option and probably even variable life. • Cons – Illustration always shows a “positive” spread. Actual cost of loan could be illustrated rate minus guaranteed credited rate in any given year. 8%? For Agent Use Only / Not for Public Distribution cn 57038122010

Common Questions There’s too many moving parts to IUL. It seems like the issuing company always has an “out” by changing caps, participation rates, etc. Isn’t it too confusing? – Since IUL is a universal life contract, there is disclosure on minimums, guarantees, etc. on the illustration. In fact there is more disclosure than a contract like whole life. In every product line (except perhaps for no lapse guarantee UL and no dividend WL), the insurance company has levers to change based on experience. For Agent Use Only / Not for Public Distribution cn 57038122010

Common Questions Which index is best to use? – It really depends on how the customer will think the market will act… • Linear-up point-to-point better • Volatile market averaging better – Averaging will generally credit something – Point-to-Point strategies generally better 2/3 rds of the time For Agent Use Only / Not for Public Distribution cn 57038122010

Common Questions Why aren’t the caps and participation rates the same for a company’s IA’s and IUL contract? – Generally, caps and participation rates will be higher for IUL than for IAs because: – The guarantees are stronger on IAs (i. e. 3% on 90%) – less money to buy options – The investment horizon for IULs is longer allowing lower cost option buying • A few more percent of premium available to buy options with IUL contracts For Bramco Use Agent Use Only / Not for Public Distribution Only. cn 57038122010

Common Questions Isn’t IUL the perfect product – no downside risk but upside market participation? – No, IUL is an additive product but doesn’t replace UL or VUL. It’s in between. Base guarantees lower than UL and less upside potential than VUL. This contract should never be compared to VUL – really only fixed UL as the performance will never match the unlimited upside potential of VUL. For Agent Use Only / Not for Public Distribution cn 57038122010

Common Questions Does the producer/customer really understand all the moving parts of IUL and the positioning of the contract? – Probably not. That’s why there’s such an opportunity for our firms – provide the unbiased advice and sell the best contract. For Agent Use Only / Not for Public Distribution cn 57038122010

Male, 45, Pref. NS $1, 000 Premium Solve to Endow; Pay All Years Rank Company 1 Lincoln Benefit Life 2 North American 3 North American 4 Aviva Life & Annuity 5 American General 6 North American 7 North American 8 9 10 Product Ultra Index Builder IUL **** Advantage Builder II Elite Index UL Guarantee Builder IUL **** Aviva Life & Annuity of Empire Solution II * NY ING Security Life of ING IUL-CV ** ^ Denver American National Notes: 1 - endow at age 120 11 Lincoln Financial 100 2 - endow at age 3 - endow at age 121 Indexed Universal Life. Reserve Indexed UL For Agent Use Only / Not for Public Distribution cn 57038122010 Cash Annual Assume Cash Value Target Premium d Rate Year 10 Year 20 Year 30 Premium Notes $5, 964 8. 00% $53, 701 $153, 357 $317, 976 $9, 170 $6, 075 8. 61% $15, 195 $105, 079 $242, 243 $15, 770 1 $6, 126 8. 61% $15, 983 $107, 812 $249, 838 $15, 770 2 $6, 137 9. 00% $41, 131 $132, 924 $270, 966 $7, 850 $6, 402 6. 93% $28, 194 $135, 203 $269, 827 $9, 720 $6, 609 8. 61% $17, 910 $107, 576 $244, 341 $8, 410 1 $6, 660 8. 61% $18, 695 $110, 302 $251, 917 $8, 410 2 $6, 993 7. 95% $52, 272 $156, 955 $304, 792 $7, 850 $8, 787 7. 94% $42, 435 $144, 307 $303, 679 $18, 000 $9, 010 for 4 years; 8. 25% $7, 238 thereafter $35, 208 $147, 902 $307, 831 2 $77, 702 $202, 028 $368, 910 $11, 100 2 $9, 876 8. 00% 3

Sample Carriers AIG Elite Global Plus IUL Accounts – Interest based on the best-performing two out of three international indices based on a 5 -year, or 1 -year point-to-point term (75%/25%). – S&P 500 – Dow Jones EURO STOXX 50 – Hang Seng Fixed loans available Illustrates 20 year look back, 55% participation, no cap Sweeps annually 3% annual guarantee Marketing – Foreign participation Customer doesn’t know performance until after the 5 th year if 5 -year selected For Agent Use Only / Not for Public Distribution cn 57038122010

Sample Carriers ANICO Accounts – S&P 500 Fixed & variable loans available Illustrates at 8. 25% Sweeps 1 st of every month 2. 5% annual guarantee Marketing – CI rider; competes against “sizzle” contracts For Agent Use Only / Not for Public Distribution cn 57038122010

Sample Carriers Lincoln Benefit Life – Ultra Index Account – One year point-to-point based on S&P 500 – Swept 15 th every month – 100% participation rate guaranteed Fixed loans only 0% annual guarantee but 2% guarantee on surrender or death Illustrates at 8% (also provides avg of S&P 500 over 30 years, 15 years, plus highest and lowest one year change Overloan protection Marketing – strong fixed account (close to current assumption UL); full surrender charge adjustment rider For Agent Use Only / Not for Public Distribution cn 57038122010

Sample Carriers Lincoln Life. Reserve Indexed UL Part of Mass Affluent Product Line – Disability Rider – ABR for terminal and chronic illness Accounts – One year point-to-point – One year monthly cap – One year monthly average Fixed and Variable loans available Illustrates at 8% Overloan protection Sweeps quarterly 1% annual guarantee 9 year surrender Marketing – a package sale for mass affluent For Agent Use Only / Not for Public Distribution cn 57038122010

Sample Carriers ING – Indexed Universal Life S&P 500 - annual point-to-point Swept monthly on 28 th Illustrated rate 7. 83% (20 year look back; 10% cap) 3% annual guarantee Fixed loans Adjustable Term Rider (ATR) Marketing – can build higher early cash value – no surrender charges in any year; refund of sales charges in the first 3 years (current basis); hypo projections – 15 high and 15 low years, premium financing. For Agent Use Only / Not for Public Distribution cn 57038122010

Summary Remember This is not a variable product Your client is not invested in the market or the index The index is merely a tool used as a component in the calculation of the interest rate credited to the policy Educate your clients about Indexed Life products For Agent Use Only / Not for Public Distribution cn 57038122010

Indexed Universal Life Insurance Questions & Answers For Agent Use Only / Not for Public Distribution cn 57038122010