Fixed Annuity Trends

Kim O’Brien NAFA President & CEO

SEC Uniform Fiduciary Standards

• Section 913 of the Dodd Frank Act • Expected to “delay” rule: Q3/Q4 2012 • Concern over extending the fiduciary

standard to broker-dealers – Bad precedent

SEC Uniform Fiduciary Standards

• Suitability Standard more than adequate • Encouraged to be persistent • NAFA Suitability Standard of Care Position

Paper • SEC to testify before Congress concerning

their budget – May provide insight into SEC’s Plans

DOL Fiduciary Rule

• Hindered by SEC’s Fiduciary Standards Work Slowing

• Effort to obtain more data on IRA’s • Need to gather more cost-benefit-analysis to

support their position • DOL still intent on moving forward

Federal Insurance Office

• Created by Dodd-Frank Act • Report on Insurance Regulation was expected

January 21st, 2012 • Still unknown what the report will

recommend

Federal Insurance Office

• When report is released, Senate Banking and House Financial Services Committee to convene

• NAFA actively monitoring

Also Monitoring

• Consumer Protection Bureau • SWAP Definition • NARAB II

General Legislative Outlook

• Partisanship expected to increase throughout election year – Delaying Policy Issues to late 4th Quarter

• This allows more time to educate and inform the various channels

• Pressures to Raise Revenue – Nothing considered “off the table”

• President’s Budget Proposal – Feb 13th • Expiring Tax Provisions • NAFA Position Paper on Retaining Tax

Considerations for Fixed Annuities

Tax Reform

• Source of Funds • Investment Advice • Designations • Suitability Enactment • Record Retention

State Watch List

NAIC Model Adoption

NAIC Suitability Standard of Care Focus • Product Knowledge

– Guaranteed Features – Surrender / Withdrawal Conditions – Income Riders - how they function – Other Riders and Limitations – MVAs – explain them – How features trigger limitations

• Training

NAIC Suitability

Standard of Care Focus • Secondary Review • Funding Source • Replacements • Post-Sale Review

NAIC Suitability

0.00%

3.00%

6.00%

9.00%

12.00%

15.00%

Range of Index Annuity Returns By Crediting Method

Blue-APP Red-Trigger Yellow-Averaging Green-Monthly Cap

Data Courtesy of Jack Marrion

2011 Sales Figures

• New Companies with FIA product • Additional distribution channels in FIA space • Low interest continues – MYGAs • GLWBs • FIA sales continue strong • Contingent Annuities under fire • Annuity Illustration Model • Social Media • Estate Planning and Annuity Structure

Trends Affecting Fixed Annuities

Comparative Rates – If a retiree was getting $1,000 a month in interest from their 1-year CDs in 2006 they’re now generally getting $112 a month from that same CD. Annuities are still paying 4 times more than CDs. Wall Street's story has crumbled with investors fleeing mutual funds. Income For Life Story – The GLWB message is annuities keep consumers independent in uncertain times. There’s a bit of a fire sale aspect to today’s GLWB with today’s guarantees due to tomorrow’s uncertainties . Retirement Funding Needs with Income Annuities or GLWBs – health care costs, legacy from the grave, maintaining lifestyle The Annuity Industry Isn’t Going Away – Investment grade bond yields dropped to the 3% to 3.5% range from 1945-1955, briefly dipping into the high 2% area in 1946 and at the start of the Korean War in 1950. From 1956 to 1966 bond yields were 4% to 5%. Annuities survived this environment and today’s products are more flexible and other much better benefits.

What’s the Good News?

NAFA Benefits at Work For You JOIN OR RENEW TODAY!

• Providing you with an ADVOCATE…..Dedicated Washington D.C. Lobbyist, Public Relations Campaign to Take Back the Media.” and Media Responses

• Keeping you UPDATED…NAFA News & Updates NAFAWire , Annuity Alerts, Compliance Bulletins, Quarterly Compliance Matrix

• EDUCATIONAL opportunities…. FREE 4 Hour NAIC Suitability course, Monthly educational webinars, monthly and quarterly Jack Marrion Publications

• Providing you with exclusive SAVINGS and DISCOUNTS……NAFA Smart Savers- discounts on travel entertainment and Life Lock Membership, competitive E&O Coverage, Discounted Software for Suitability Compliance

Contact theresa@nafa.com or www.nafa.com

Kim O’Brien, CFP, MBA President & CEO kim@nafa.com phone : 414-332-9306 888-884-NAFA (6232)

Thank You!