traditional asset class returns – (25 years 1986-2010)
DESCRIPTION
Life Insurance as an Alternative Asset. Traditional Asset Class Returns – (25 years 1986-2010). Life Insurance as an Alternative Asset Class. 5.0%. Treasury Bills. How much would a man age 53 need to deposit today in each of these traditional asset classes in - PowerPoint PPT PresentationTRANSCRIPT
©2012 Lincoln National CorporationLCN 201203-XxXxXxXxX
-Traditional Asset Class Returns –(25 years 1986-2010)
Treasury Bills
Corporate Bonds
U.S. Stocks
Real Estate
Sources: Treasury Bills - US Treasury 90 day Bills, Corporate Bonds – Barclay’s Capital US Credit, US Stocks - S&P 500, Real Estate - NCREIF
5.0%
8.5%
9.7%
8.4%
How much would a man age 53 need to deposit today in each of these traditional asset classes inorder for his investment to grow to $10,000,000 by his life expectancy?
Life Insurance as an Alternative Asset
Life Insurance as an
Alternative Asset Class
©2012 Lincoln National CorporationLCN 201203-XxXxXxXxX
(2) 25 yr avg. (1986-2010) returns taxed @ 28% 90 day T-Bills 5.00%, Bonds 8.50% – Barclay’s Capital US Credit, Stocks 9.70% - S&P 500, Real Estate 8.4% - NCREIF
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
$4,130,533
$2,265,004$1,851,123
$2,303,764 $2,234,013
T Bills Bonds Stocks RealEstate
LifeInsurance (3)
Male 53 Pref Non-TobaccoSingle Deposit required to grow to $10,000,000 by life expectancy (1,2)
(1) 25.3 yrs US Life Table (sex distinct)
(3) Full Lifetime Guarantee premium using Lincoln LifeGuarantee UL 2012, premium to guarantee to LE $1,980,000
Life Insurance as an Alternative Asset
©2012 Lincoln National CorporationLCN 201203-XxXxXxXxX
(TOTAL RETURN - RISK FREE RETURN)
BondsReal Estate
T-Bills
Stocks
Exp
ecte
d
Ret
urn
Expected Risk
=SHARPERATIO
STANDARD DEVIATION
(Standard Deviation)
Non Correlation
Historical Risk / Return Characteristicsof Traditional Asset Classes
Historical Risk / Return Characteristicsof Combined Traditional Asset Classes
Modern Portfolio Theory
Life InsuranceGuaranteed
DB @ LE Risk Adjusted Return Measure
Life Insurance as an Alternative Asset
©2012 Lincoln National CorporationLCN 201203-XxXxXxXxX
“In the long runwe are all dead”
John Maynard KeynesThe General Theory
of Employment, Interest and Money 1936
‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00
-40
-30
-20
-10
0
10
20
30
40
Sample S&P 500 Indexing Methodology1991-2010
Values (1) Dividends
(1) One-year S&P 500 Index % change. Past performances of the S&P 500 index is no guarantee of future changes or future index earnings.
S&P 500 Annual Returns Indexed Annual Returns (2)
(2) One-year Point-to-Point Indexed Account – receives indexed interest linked to the percentage change of the S&P 500 over the segment year.
Asset Allocation Annual Returns (3)
(3) Asset Allocation: 65% S&P 500, 20%MSCI World Ex-US, 15%Barclays Capital U.S. Aggregate.
Safe Range of possible earnings
13%
1%Purchase
Option
SellOption
Facsimile
Pay Phones
Cell Phones
VHS
VCR
Day Trading
High Speed
Dial Up
High Speed
Alcohol
Texting
Hard Line
Cell Phones
Mutual Funds
ETF’s
“ I took the initiativein creating the internet.”
Al GoreInventor
3-11-99on CNN
Economics of Indexed Universal Life
©2012 Lincoln National CorporationLCN 201203-XxXxXxXxX
“The portfolio has proved to be riskier, more volatile and less effectiveas an economic hedge than we thought.”
Jamie DimonCEO JPMorgan Chase Bank
May 11, 2012Describing a $2B loss on a portfolio designed to manage risk
©2012 Lincoln National CorporationLCN 201203-XxXxXxXxX
First Decade 2001- 2010Last Decade 1991- 2000
13% Cap1% Floor
AssetAllocation
S&P 500
His
toric
al R
etur
ns
Historical Risk(Standard Deviation)
00
25
25
Data sources: Annual Standard & Poors 500 Index with dividends, 13% Cap & 1% Floor excluding dividends Asset Allocation: 65% S&P 500, 20% MSCI World Ex-US, 15% Barclays Capital U.S. Aggregate.
TBills
- What a difference a Millennium makes -
Economics of Indexed Universal Life
©2012 Lincoln National CorporationLCN 201203-XxXxXxXxX
13% Cap1% Floor
AssetAllocation
S&P 500
TBills
- What a difference a Millennium makes -
Combined First & Last Decades 1991- 2010
His
toric
al R
etur
ns
Historical Risk(Standard Deviation)
00
25
Data sources: Annual Standard & Poors 500 Index with dividends, 13% Cap & 1% Floor excluding dividends Asset Allocation: 65% S&P 500, 20% MSCI World Ex-US, 15% Barclays Capital U.S. Aggregate.
First Decade 2001- 2010Last Decade 1991- 2000
25
Economics of Indexed Universal Life
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Not for Use with the public
0
5000
10000
15000
20000
25000
30000
35000
40000
0
5000
10000
15000
20000
25000
30000
35000
40000
S&P 500(1)
1960 1970 1980 1990 2000 2010
13% Cap 1% Floor
$1,000 Growth over 50 Years
17,374
41,578
The power of 1%
Rule 1: NEVER lose principal
Rule 2: NEVER forget rule 1
(1) Growth based on Annual change in value of S&P500 Index excluding dividends beginning and ending on December 28 th.
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Cash Value Accumulations $235,000 Opt 2 to 1 Switch assuming 7% net return (1)
F 50 Standard Non Tobacco, $10,000 annual premium yrs 1-20$33,000 annual withdrawals / loans from yr 21 to 40
Lincoln AssetEdge VUL 2009
0
100000
200000
300000
400000
50 70 10090LEAGE
20 yr Accumulation Period 20 yr Distribution Period
0
100000
200000
300000
400000
50 70 10090LEAGE
Lincoln LifeReserve Indexed UL
(1) Lincoln AssetEdge VUL 2009 assuming 7.75% gross / 7.00% net , assuming 0% return no income is available Lincoln LifeReserve Indexed UL assuming fixed 3.90% (10% allocation) , indexed 7.35% (90% allocation) assuming 1% return no income is available
The Participating Loan Differentiator
The Participating Loan
Differentiator
LCN201206-XxXxXxXxFor Broker Dealer Use Only
Not for Use with the public
Loans and withdrawals will reduce account value and death proceeds
Borrow up to 100% of cash surrender value
Lincoln LifeReserve Indexed UL Loans
Loaned values continue to receive current indexed interest crediting
7% hypothetical return on borrowed funds
5% guaranteed loan rate (1)-+ 2% gain on borrowed funds
Loan Example 1
5% guaranteed loan interest charges
1% guaranteed return on borrowed funds
- 4% guaranteed debt on loaned funds
Loan Example 2
(1) 5% loan rate guaranteed yrs 11+, 6% loan rate guaranteed yrs 1-10
The Participating Loan Differentiator
‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00
13%
0%
-5%
Interest Credited (2)
Interest Charged (1)
+ 8%8%
- 4%-4%
PotentialLoan Rate
Differential
4.92%
AverageDifference
Net Interest“EARNED”on Borrowed
money
‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10
13%
0%
-5%
2.97%
AverageDifference
Historical Loan Interest (1)
1991 - 20002001 - 201020 yrs - 1991 - 2010
‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00
13%
0%
-5%
3.94%Average
Loan InterestDifferential
Hypothetical Historical (1) $10,000 Annual Loan
1991 through 2010 Credited Loan “Earned”Year Rate Differential Interest
800 2,414 2,893 1,169 5,589 11,030 17,543 25,182 34,004 28,973
1991 13.00 8.001992 12.51 7.511993 6.77 1.771994 1.00 <4.00>1995 13.00 8.001996 13.00 8.001997 13.00 8.001998 13.00 8.001999 13.00 8.002000 1.00 <4.00>
2001 1.00 <4.00>2002 1.00 <4.00 >2003 13.00 8.002004 12.89 7.892005 5.41 .412006 13.00 8.002007 3.53 1.472008 1.00 <4.00>2009 13.00 8.002010 13.00 8.00
23,263 16,896 31,067 46,530 47,415 64,661 55,152 43,899 68,330 89,789
Credited Loan “Earned”Year Rate Differential Interest
(1) Lincoln LifeReserve Indexed UL Assuming: Interest crediting based on historical S&P 500 Composite Stock Price Index (excluding dividends) from 2010 through 1991,
LifeReserve Indexed UL (2011) was not available in 1991. Future results are not based on past performance and may be better or worse than those shown. subject to a 13% cap and 1% minimum guarantee using 100% allocated to 1 Year Point to Point crediting method. For illustrative purposes only, since Lincoln
The Participating Loan Differentiator