The document discusses the impact of the Department of Labor's fiduciary rule on annuity product development and pricing. It covers three key areas: 1) An overview of the fiduciary rule, including timelines and impacted asset classes. 2) The impact on product design, such as standardization, reduced commissions and fees, and limitations on complex features. 3) The impact on product pricing, including lower lapse assumptions, expense implications, and the need for pricing refinements. The overall impact will be a repositioning of variable annuity and fixed index annuity products under the new regulations.

1. © 2016 Oliver Wyman
Annuity Product Development Trends and Issues – Impact of
DOL
2016 Society of Actuaries Annual Meeting
Las Vegas, October 24, 2016
Guillaume Briere-Giroux, FSA, MAAA, CFA

2. © 2016 Oliver Wyman
11
Agenda
1 Overview of DOL fiduciary rule
2 Impact on product design
3 Impact on product pricing

3. 2© 2016 Oliver Wyman 2
Overview of DOL fiduciary rule
Assets impacted
401(k), $4.7
403(b), $0.9
Other DC Plans, $1.2
IRA (Mutual Funds), $3.5
IRA (Banks and Thrifts),
$0.5
IRA (Other), $3.0
IRA (Annuities), $0.4
Annuities (Other), $1.9
Source: Investment Company Institute (2016 Investment Company Fact Book)
Year-end 2015 US Retirement Assets ($ Trillions)

4. © 2016 Oliver Wyman
Overview of DOL fiduciary rule (continued)
Key timeline
October
22, 2010
fiduciary
rule
proposed
September
19, 2011
proposal
withdrawn
April 20,
2015
rule re-
proposed
April 6,
2016
final rule
released
April 10,
2017
new
fiduciary
definition
effective
January 1,
2018
full BIC
compliance
in place

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44
Impact on product design
Product
Component
Impact on VA / FIA Impact on Fixed-rate Annuity
Standardization vs.
customization
• Shelf standardization (within)
• Shelf customization (across)
• Lesser impact
Commissions • Determine what’s “reasonable”
• Industry benchmarking
• Likely drive down product commission
• Move towards fee-based model
• Lesser impact
Surrender charges • Pressure to reduce both the size and length of
surrender charge
• Lesser impact
Product fees /
interest margin
• Pressure to reduce M&E and rider fee on VA
• Pressure to reduce interest margin on FIA
• Minimal impact
Minimum size • Likely raise minimum contract size • Minimal impact
GLWB and other
guarantees
• More difficult to offer if surrender charge is
reduced and fees are lowered
• The justification to buy VA/FIA?
• Will GLWB become predominant?
Complexity • Pressure to reduce product complexity (e.g.
indexed crediting methods, volatility controlled
features)
• Minimal impact

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Impact on product pricing
Pricing
Component
Impact on VA / FIA Impact on Fixed-rate Annuity
Commissions • Lower strain
• Implications on pricing methodology
• Lesser impact
Expenses • Initial implementation cost to comply with BICE
• Ongoing compliance cost
• Limited compliance cost
Average size • Expect higher average size • Do not expect material change
Lapses • Expect lower lapses
• Expect lapses to become more dynamic
• Negative pricing impact if product/feature is lapse
supported
• Variation by channel
Other policyholder
behavior
• Expect more rational policyholder behavior such as
GLWB utilization
• Negative pricing impact
• Small to no impact
Profit margin • Standardization vs. differentiation
• Shelf presence
• Capacity constraints
• Variation by channel

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66
Key takeaways
1 Product repositioning
2 Pricing refinements
3 Outlook