Financials / ALM

44 Pages·2012·1.1 MB·English

Asset / Liability
Management
Chad Myers, EVP, CFO
Agenda
(cid:131) Balance Sheet Overview
(cid:131) VA Pricing
(cid:131) VA In-Force
(cid:131) VA Policyholder Behavior
(cid:131) Hedging
(cid:131) Financials
(cid:131) Liquidity
(cid:131) Q&A
2
Statutory Reserves – Major Product Categories
9/30/12 = $129bn
2007 = $71bn
2002 = $43bn
1%
1997 = $28bn 2% 12% 14%
2%
10%
3%
12%
3%
25%
6%
17%
12% 8%
46%
19%
10%
7%
4%
64%
2% 4%
6%
0%
10%
5%
56%
40%
Fixed Annuities GA Variable Annuities SA Variable Annuities Fixed Index Annuities Institutional Products Life Insurance Other
GA = General Account SA = Separate Account
3
Statutory Reserves and AUM – Major Product Categories
9/30/12 = $129bn 9/30/12 = $137bn Consolidated
1%
444222%%%
12% 14%
3%
6%
8% 6%66%%
66%%6%
22%%
2%
33%%
3%
4411%%
56%
41%
Fixed Annuities GA Variable Annuities General account CurianAUM
SA Variable Annuities Fixed Index Annuities
VA no optional benefit VA GMIB reinsured
Institutional Products Life Insurance
VA GMDB only VA with living benefits
Other
4
Jackson Fee Based Business
VA Account Value and Curian AUM
Fee Based Premiums and Deposits ($ in billions)
$91.5 billion ending September 30, 2012 ($ in billions)
Elite Access, $0.6
Curian, $8.6 $20.2
$16.8 $17.2
VA -
No Optional
$11.2
Benefits, $9.8
VA -GMDB
Only, $5.1
VA -Other, $65.3 (ReViAns -uGrMedIB), $2.1 25% 23% 23% 24%
2009 2010 2011 Q3 YTD 2012
Curian VA -Elite Access
VA -GMDB Only VA -No Optional Benefits
VA -GMIB (Reinsured) VA -Other
5
Major Product Risks
Product Type Risk Type Exposure (Sept 30, 2012) Mitigant
Fixed Annuities (cid:131) Low Interest Rates (Minimum guarantee) $27.8billion statutory reserves net (cid:131) Low absolute guarantee (1%-3%)
(cid:131) Credit of reinsurance (cid:131) Duration management
(cid:131) Swaps
Fixed Annuities (cid:131) High Interest Rates (Surrenders) $27.8 billion statutory reserves net (cid:131) Duration management
(cid:131) Credit of reinsurance (cid:131) Surrender charges
(cid:131) MVAs
(cid:131) Swaptions
Fixed Indexed Annuities (cid:131) Increasing Equity Market (Index participation) $10.5 billion account value (cid:131) Hedging
(cid:131) Credit (cid:131) Annual reset
(cid:131) Duration management
GMDB (cid:131) Decreasing Equity Market $4.2 billion net amount at-risk (NAR) (cid:131) Time diversification
(Minimum guaranteed values) $76.1 billion net premium in force (cid:131) Mortality-based risk
(cid:131) Mortality (cid:131) Hedging
(cid:131) Decreasing Interest Rates
$2.4 billion net premium in force (cid:131) Reinsurance
GMIB (cid:131) Decreasing Equity Market
$60.9 billion net premium in force (cid:131) Time diversification
GMWB (Minimum guaranteed values)
(cid:131) Hedging
(cid:131) Longevity
(cid:131) Decreasing Interest Rates
Institutional (cid:131) Floating Rate Exposure (higher interest rates) $4.0 billion statutory reserves (cid:131) Duration management
(cid:131) Credit
Life (cid:131) Mortality $14.7 billion statutory reserves (cid:131) Reinsurance
(cid:131) Decreasing Interest Rates (cid:131) Duration management
(cid:131) Credit
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Life and Fixed Annuity Portfolio Net Interest Spread
6%
5%
4%
3%
2%
1%
0%
5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 1 2 2
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1
r- n- p- c- r- n- p- c- r- n- p- c- r- n- p- c- r- n- p- c- r- n- p- c- r- n- p- c- r- n-
Ma Ju Se De Ma Ju Se De Ma Ju Se De Ma Ju Se De Ma Ju Se De Ma Ju Se De Ma Ju Se De Ma Ju
Net Investment Spread 5-Year Treasury Yield Net Credited Rate on In-Force
7
In-Force Fixed Annuities
Fixed Annuity Credited vs. Guarantee Rate, % of Fixed Annuities
at Minimum Guarantee
(excludes IA & VA Fixed)
4.5% 75%
4.0% 70%
3.5% 65%
3.0% 60%
2.5% 55%
2.0% 50%
011...505%%% 1.04% 1.05% 1.05% 1.03% 1.01% 0.98% 0.94% 0.90% 0.87% 0.84% 0.79% 0.79% 0.75% 0.73% 0.70% 0.67% 0.65% 0.64% 0.62% 0.61% 0.59% 0.58% 0.56% 0.54% 0.52% 0.50% 0.48% 0.45% 0.44% 0.42% 0.39% 0.37% 0.35% 0.33% 0.32% 0.32% 0.31% 0.31% 0.31% 0.32% 0.31% 0.31% 0.31% 0.31% 0.31% 0.31% 344505%%%
0.0% 30%
8 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2
0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep-
Credited -Gtee. Inforce Credited
Guaranteed % of Ann. at Gtee. Rate (RHS)
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Variable Annuity Pricing Approach and Methodology
(cid:131) Identify Concept & Initiate an Initial Risk/Regulatory Review
(cid:131) Set Assumptions
– Based on credible company experience
– Conservative view on unproven assumptions considering the product’s risk profile
(cid:131) Risk Adjusted Stochastic Pricing
– Two distinct approaches to Economic Scenarios
– (1) Historical: Conditional Tail Expectation – CTE(70)
– (2) Adjusted Market Consistent: Conservative Market Parameters – e.g. 25% Annual Volatility
(cid:131) Disciplined Pricing Process
– Model complex benefits and features including policyholder optionality
– Conservative Assumption Margins: Equity Allocation; Dynamic Lapse Behavior; Withdrawal Utilization
– Sensitivity Analysis Determined by Risk Drivers
– Benefits are priced to cover their costs on a standalone basis
(cid:131) Holistic and Formal Approach
– Collaboration across the organization: Work closely with ALM, Financial, Actuarial, Legal, and Distribution
– Required sign-off & review for pricing models and assumptions
– Formal approval from Product Committee
– Board and Group approvals for new product categories/risks
9
Variable Annuity Pricing
PV Profit by Percentile
(cid:131) Profit distribution for the standalone
benefit analyzed based on historical
parameters as well as adjusted market
50thpercentile consistent approach
Historical mean
(cid:131) For this benefit both approaches
converge around the 90th percentile of
Historical pricing break-even
the historical distribution at break-even
s
fit profit
o
r
P
f (cid:131) GMWB benefit is profitable at the
o
V historical mean and well into the tails
P
(cid:131) Hedging activity expected to truncate the
Adjusted market consistent
losses while retaining upside potential
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Percentile
10