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Deferred Income Annuity (DIA)

Actuaries’ Club of Hartford/Springfield

Hartford, Connecticut

May 21, 2014

Presented by: Jennifer Healy

(2)

Agenda

2

Defining DIA

The Product

The Fit

Why Now?

The Market

The Pricing & Risk

(3)

Most Enlightening Point You’ll Ever Hear

3

Deferred

Income

Annuity

(4)

The Product – 2 Distinct Phases

4

Deferral

Payout

You Are Here

You Want Income Here

Choose

Payout

Option &

Start Date

Deferral Period ….

Typically 1-40 years

Typically pays ROP death benefit

Can change start date

Payout Period Options…

Life Only

Life w/guarantees (# yrs, refund, etc)

Joint Life (with or without reduction)

Joint Life w/guarantees

Period Certain Only (in some cases)

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Product Positioning – Usage Scenarios

5

Today:

Age 50

Income Start:

Age 65

Life w/10 Payout

Retirement Income

Scenario: Client is aged 50, plans to retire at 65. Wants to secure income now to cover fixed expenses in

retirement, wants it to pay for his life with 10 years guaranteed

Longevity Insurance

Scenario: Client is aged 50, plans to retire at 65, feels confident in his nest egg but is worried about

outliving it. Wants income to start at age 85 and go for life

Today:

Age 50

Retire:

Age 65

Income

start at 85

Social Security Bridge

Scenario: Client is aged 50, plans to retire at 62, wants to defer Social Security until age 70 to maximize

the SS income. Wants to purchase period certain DIA to provide income coverage during the gap

Today:

Age 50

Retire:

Age 62

Social

Security

starts at 70

Deferral

Deferral

Deferral

$ $ $ $ $ $ $ $

Pmts End

$ $ $ $ ……..

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $...

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6

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Income Products Have Room to Grow

7

$147.4 $145.3

$63.3

$74.3

$8.7 $10.5

$0.0 $25.0 $50.0 $75.0 $100.0 $125.0 $150.0 $175.0

Full Year 2012: $219.4 bil. Full Year 2013: $230.1 bil. Variable Fixed Income

in $billions

Total Annuity Sales 2012 vs. 2013

While still a small part of the overall annuity industry, Income

sales increased 20% from 2012 to 2013

Source: LIMRA SRI,U.S. Individual Annuitiessurvey, Q4 2013. Fixed Annuity excludes Income

$63.6

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DIA Sales Up 100

+

% Year over Year

Source: LIMRA SRI,U.S. Individual Annuitiessurvey, Q4, 2013. Number of

Companies selling DIAs

3 3 4 4 5 5 7 8 8 10

Income Annuity Sales

D o lla rs in B ill io n s $2.2

$1.9 $1.8 $1.9 $2.0 $2.0

$1.7 $1.9

$2.1

$2.6

$0.10

$0.10 $0.16 $0.21

$0.27 $0.39

$0.40

$0.54

$0.56

$0.71

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

Immediate Income

Deferred Income

In two years, the number of

carriers more than tripled

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Over three quarters of DIA sales are IRAs and

two-thirds come from Career Agents

Non

qualified

23%

IRA

77%

Career Agents 66% Full

Service National

B/D 29%

Bank 3%

Indep. Agent 1%

Indep. B/D 1%

Source: LIMRA SRI,U.S. Individual Annuitiessurvey, Q4 2013.

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DIA - The Most Efficient Way to Generate

Income

10

DIA vs. Hypothetical GLWB

Assume: $100K premium for Male age 60; Life with Cash Refund payout option

DIA: Income starts as noted in chart

GLWB: 5% simple interest deferral bonus; 5% Annual Withdrawal Rate. Step-ups possible

DIA

Issue Age

Income

Start

Age

Annual

DIA

Income

60

63

$6,900

60

66

$8,700

60

70

$12,000

GLWB

G’teed Annual

Withdrawal Base

at Income Start

Guaranteed Annual

Withdrawal

$115,000

$5,750

$130,000

$6,500

$150,000

$7,500

For the 10 year deferral, the GLWB would have to average over 9% returns

per year in order to generate the same income level as DIA.

DIA income amounts are based on Mass Mutual rates in effect 12/1/2013 . Income amounts are rounded for illustrative purposes

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Pricing and Risk Considerations

Reinvestment Risk

Long duration product, locking in

price today- have to reinvest as

assets mature

How confident are you in your

reinvestment assumption?

11

Happy 110

th

Birthday!

Wow. He lived a lot longer

than we thought based on

the mortality tables we had

when he bought the

contract at 55

Longevity Risk

Long duration product with no

chance to “reprice”

How confident are you in your

mortality and improvement

assumptions?

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Recap

What does DIA stand for?

Why is DIA gaining traction? What events led to this?

Name two main product risks

Have DIA sales increased at all in the last year?

Bonus Question – by how much (roughly)?

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© 2014 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www.massmutual.com. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.

Annuity products are issued by Massachusetts Mutual Life Insurance Company (MassMutual) and C.M. Life Insurance Company. C.M. Life Insurance Company, Enfield, CT 06082, is non-admitted in New York and is a subsidiary of Massachusetts Mutual Life Insurance Company, Springfield, MA 01111.

Variable annuities offered through registered representatives of MML Investors Services, LLC, Springfield, MA 01111-0001 or a broker-dealer that has a selling agreement with MML Strategic Distributors, LLC, Springfield, MA 01111-0001. MML Strategic Distributors, LLC is a subsidiary of MassMutual

References

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