Thriving inThriving inan Economic Downturn:an Economic Downturn:

What Lies Ahead?What Lies Ahead?20th A l E ti C f20th Annual Executive Conference

for the Life Insurance IndustryNew York, NY,

November 6, 2009

Steven N. Weisbart, Ph.D., CLU, Senior Vice President and Chief EconomistInsurance Information Institute ♦ 110 William Street ♦ New York, NY 10038

Tel: (212) 346-5540 ♦ Cell: (917) 494-5945 ♦ stevenw@iii.org ♦ www.iii.org

Presentation Outline

• Isn’t the Downturn Over?The Housing Market: Still a Source of Downward PressureA Full-employment Economy? It’s Many Years Away

• Interest and Inflation Rate Expectations• The New Financial Anxiety• Individual Life Insurance: Status Reportp

Sales, Lapse, Policy Loan Trends

• A Financial Security Budget Target?y g g• Q & A

Wait a Minute:Wait a Minute: Isn’t theIsn’t the

DDownturn Over?

Real Quarterly GDP Changes (annualized),

2005:Q3-2010:Q4F Red bars are actual; Yellow

4%8%

Q QSpike due almost entirely to the weak dollar

(growing exports and slowing imports)

;bars are forecasts/estimates

3.1%

2.1%

5.4

4%

3.0%

%

3.2% 3.

6%

2.1%

5%

3.5%

2.4% 2.6% 2.7% 2.8% 2.9%

2%

4%

6%

2

1.4

0.1%

1.2% 2

1.5

.7%

.7%

2%

0%

2%

%

-0.

-0.

-2.7

%

6%

-4%

-2%

The Q1:2009 decline was th t t i th

-5.4

%

-6.4

%

-8%

-6%

5:3Q

5:4Q

6:1Q

6:2Q

6:3Q

6:4Q

7:1Q

7:2Q

7:3Q

7:4Q

8:1Q

8:2Q

8:3Q

8:Q

4

9:1Q

9:2Q

9:3Q

9:4Q

0:1Q

0:2Q

0:3Q

0:4Q

the steepest since the Q1:1982 drop of 6.4%

05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10

Sources: US Department of Commerce, Bureau of Economic Analysis (actual) at http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htmBlue Chip Economic Indicators 10/09 issue (forecasts).

Total Industrial Production, monthlyMar 2001-Sept 2009 (Index 2002=100)*

113

Mar 2001-Sept 2009 (Index 2002=100)*

Recession began December 2007

Index

March 2001-

110

December 2007

H i

November 2001 recession

104

107 Hurricane Katrina

101

95

98 Industrial production turned up in July

95

Mar

01

Jun

01

Sep

01

Dec

01

Mar

02

Jun

02

Sep

02

Dec

02

Mar

03

Jun

03

Sep

03

Dec

03

Mar

04

Jun

04

Sep

04

Dec

04

Mar

05

Jun

05

Sep

05

Dec

05

Mar

06

Jun

06

Sep

06

Dec

06

Mar

07

Jun

07

Sep

07

Dec

07

Mar

08

Jun

08

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Source: http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt. *seasonally adjusted5

U.S. Nonfarm Private Employment, Monthly Nov 2007 – Sept 2009Monthly, Nov. 2007 Sept. 2009

0 1 0 9 8 8 7 6

Millions Job loss is slowing. Only 263,000 jobs

Employment peak; recession starts

138.

0

138.

1

138.

0

137.

9

137.

8

137.

8

137.

7

137.

6

137.

6

137.

4

137.

0

136.

7

36.2

136 5137.0137.5138.0138.5 Only 263,000 jobs

lost in September

13

135.

1

134.

3

.7134 5135.0135.5136.0136.5

1

133

133.

0

132.

5

132.

2

1.7

4132.5133.0133.5134.0134.5

1

131

131.

4

131.

2

130.

9

130.5131.0131.5132.03 5

130.0Nov07

Dec07

Jan08

Feb08

Mar08

Apr08

May08

June08

Jul08

Aug08

Sep08

Oct08

Nov08

Dec08

Jan09

Feb09

Mar09

Apr09

May09

Jun09

Jul09

Aug09

Sep09

Seasonally adjusted. Source: US Bureau of Labor Statistics

But Problems RemainHousing is

S ill SStill a Sourcef D d Pof Downward Pressure

High Ratio of Unsold-Homes Inventory to Sales Will Likely Keep Prices Falling

Inventory of unsold homes number of homes sold

to Sales Will Likely Keep Prices FallingMillions of Homes, Annual Rate

7.1

6.56

7

8Inventory of unsold homes number of homes sold

# of house sales fell;inventory was roughly constant

# of house sales is slightly higher

.0 7 8 6 9 9 8 4.1

6

5.7

4.9

4.49 4.71

4.55 4.66

4.72 4.89 5.

24

5.10

4

5

6

2.8 3.

5 4. 3.7

3.6 3.8

3.6 3. 3.9

3.8 4

3.64 4

2

3

0

1

05 06 07 08

n-09

b 09 r 09

r 09

y 09

n 09 l 09

g 09

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Source: http://www.realtor.org/research/research/ehsdata

Many People’s Main Asset (Their Home) Has Lost 6 Years of AppreciationHas Lost 6 Years of Appreciation

210Home prices in July 2009

Index*

180190200 Home prices in July 2009

were about equal to August 2003

150160170

Current recession began in Dec ‘07

120130140

July 2009 index value was 144.23: home prices were

30% below their July

100110

n-00

n-01

n-02

n-03

n-04

n-05

n-06

n-07

n-08

n-09

30% below their July 2006 peak

Jan

Jan

Jan

Jan

Jan

Jan

Jan

Jan

Jan

Jan

*Case-Shiller Home Price Index (20-city composite); January 2000=100. Not seasonally adjustedSource: http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_History_072820.xls

“Shadow” Inventory of Unsold Homes: It’s Worse Than You ThinkHomes: It s Worse Than You Think

• Zillow com’s latest Homeowner Confidence SurveyZillow.com s latest Homeowner Confidence Survey (published August 18, 2009) asked homeowners how likely they would put their homes on the market if they saw signs of a turnaround in the next 12 months:saw signs of a turnaround in the next 12 months:

Very likely, 8% (7.5 million homes)( illi h )Likely, 9% (7.5 million homes)

But Adam York, economist for Wells Fargo S iti “ t d th t th t f h th tSecurities, “contends that the amount of homes that have not yet been listed for sale could be around 4-5 million.

Source: http://zillow.mediaroom.com/index.php?s=173

“Millions” More Foreclosures are LikelyMillions More Foreclosures are Likely

• “[A]ny modification program seeking to [ ] y p g gavoid preventable foreclosures has limits, HAMP included. Even before the current crisis, when ,home prices were climbing, there were still many hundreds of thousands of foreclosures. yTherefore, even if HAMP is a total success, we should still expect millions of foreclosures, as President Obama noted when he launched the program in February.”Source: Treasury Assistant Secretary for Financial Institutions Michael S. Barr, Written Testimony on Stabilizing the Housing Market before the House Financial Services Committee, Subcommittee on Housing and Community Opportunity (emphasis added)

At Midyear 2009, Over 40% of Subprime Loans Were Delinquent or in Foreclosure

(2005:Q1 2009:Q2)(2005:Q1-2009:Q2)

The Percent of Delinquent Prime Loans and Prime Loans in Foreclosure Is Still Rising Sharply

(2005 Q1 2009 Q2)(2005:Q1-2009:Q2)

Fewer People/Fewer People/ Organizations areOrganizations are

BorrowingBorrowing

Households and BusinessesAre Still “Deleveraging”

16% Home Mortgage Consumer Credit Business Corporate

g gPercent Change in Debt Growth (Quarterly since 2004 at Annualized Rate)

8%

12%Corporate

deleveraging

4%

8%

-4%

0%

Personal (mortgage) d l i

Consumer d ti ?

-8%

4:Q

1

4:Q

2

4:Q

3

4:Q

4

5:Q

1

5:Q

2

5:Q

3

5:Q

4

6:Q

1

6:Q

2

6:Q

3

6:Q

4

7:Q

1

7:Q

2

7:Q

3

7:Q

4

8:Q

1

8:Q

2

8:Q

3

8:Q

4

9:Q

1

9:Q

2

deleveragingdesperation?

2004

2004

2004

2004

2005

2005

2005

2005

2006

2006

2006

2006

2007

2007

2007

2007

2008

2008

2008

2008

2009

2009

Source: Federal Reserve Board, at http://www.federalreserve.gov/releases/z1/Current/z1r-2.pdf

A Full-Employment p yEconomy is Still

M Y AMany Years Away

Unemployment and UnderemploymentRates: Rocketing Up in 2008-9

18Traditional Unemployment Rate U-3Unemployment + Underemployment Rate U-6

January 2000 through September 2009, seasonally adjustedg p

Percent

14

1618 Unemployment + Underemployment Rate U-6

U-6 went from 9.2% in April 2008 to

9.8% Sept. 2009 unemployment rate (U-3) was the highest monthly rate since 1983.

1012

in April 2008 to 17.0% in Sept. 2009

g yPeak rate in the last 30 years: 10.8% in

Nov-Dec 1982.

6

8

24

00 01 02 03 04 05 06 07 08 09

Jan-

0

Jan-

0

Jan-

0

Jan-

0

Jan-

0

Jan-

0

Jan-

0

Jan-

0

Jan-

0

Jan-

0

Source: US Bureau of Labor Statistics; Insurance Information Institute.

U.S. Unemployment Rate ForecastsQuarterly 2009:Q4 to 2010:Q4Quarterly, 2009:Q4 to 2010:Q4

10.5%

10.1%10.3% 10.3% 10.3%

10.2%10.0%

10.1% 10.1%

9 9%10.0%

10.5%

9.8%

9.6%

9.9%9.8%

9.6%9.5%

9.2%

8.9%9.0%

U l t i t d t

8.5%09:Q4 10:Q1 10:Q2 10:Q3 10:Q4

Unemployment is now expected to peak in late 2009:Q4 or 2010:Q1.

10 most pessimistic consensus/midpoint 10 most optimistic

Sources: Blue Chip Economic Indicators (10/09); Insurance Info. Inst.

When Might All of the Lost JobsB R i d? 2016?Be Regained? 2016?

Source: Wall Street Journal, October 9, 2009, p. A3

I R WillInterest Rates Will Lik l St L fLikely Stay Low for

th F blthe ForeseeableFutureFuture

2009-2010 Inflation Forecast: Low Rates AheadLow Rates Ahead

6% Average inflation rate, 1992-2007: 2.67% Following J l 1990

4.9%5.1%

3.8% 3.8%4%

5%July 1990-

March 1991 recession

Following March 2001-November 2001 recession

3.0%3.2%

2.6%

1 9%

3.3%3.4%

2.5%2.3%

3.0% 2.8%

1 9%

2.8%2.9%2.4%3%

4%

1.5%1.9%

1.3%

1.9%

1%

2%

-0.5%

-1%

0%90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09F10F

1%

Sources: US Bureau of Labor Statistics (actual, blue bars); Blue Chip Economic Indicators, 10/2009 issue, (forecasts, yellow bars)

Theory: Re-ignited Inflation Won’t ThreatenUntil the Economy Returns to a Full-Employment

Level Likely a Few Years AwayLevel—Likely a Few Years Away

The markets areThe markets are starting to worry that the flood of money for the recovery will re-ignite inflation (th d b t(the spread between 10-Year TIPS and 10-Year T-Notes is10-Year T-Notes is widening).

Source: Cooper, “Hints of Recovery—And Fears of Inflation,” BusinessWeek, May 11, 2009, p. 8

Bond Yields Tend to Reflect Expected Inflation, but the Relationship is a Loose Onef

10%CPI-U % Change U.S. Treasury 10-Year Note Yield

8%

10%ForecastJuly 1990-

March 1991 recession

March 2001-November 2001

recession

6%

2%

4%

0%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09F

10F

-2%

0

Sources: US Bureau of Labor Statistics (history); Blue Chip Economic Indicators, 10,/2009 issue (forecasts)

Net Rate on L/H General Account Assets Tends to Follow 10 Year US T Note

14%

L/H Net Rate, Gen'l Acct 10-Year Treasury Note

Tends to Follow 10-Year US T-Note

12%

14%

8%

10%

4%

6%

2%

4%

980 81 82 83 84 985 86 87 88 89 990 91 92 93 94 995 96 97 98 99 000 01 02 03 04 005 06 07 08 09*

10*

19 19 19 19 20 20 020

1

*estimates/forecasts from October 2009 issue of Blue Chip Economic Indicators Sources: ACLI Life Insurers Fact Book 2008, p. 34; http://federalreserve.gov/releases/h15/data/Annual/H15_TCMNOM_Y10.txt

What’s the Longer-What s the LongerTerm ForecastTerm Forecast

for Interest Rates?

Will Federal Deficit Spending Ultimately Re-ignite Severe Inflation?

$200

$400 4%Federal Deficit ($ Bill)d fi it % f GDP

Ultimately Re ignite Severe Inflation?

-$200

$0

$200

0%

2%deficit as % of GDP

-$800

-$600

-$400

dera

l Def

icit

-4%

-2%

t as

% o

f GD

P

-$1,200

-$1,000

$800

Fed

-8%

-6% Defic

i

Deficit hit $1.6 trillion inFY 2009 (11% of GDP)

-$1,800

-$1,600

-$1,400

-12%

-10%

FY 2009 (11% of GDP),by far a post-WW II high

$1,800

1969

1975

1980

1985

1990

1995

2000

2005

2010

2015

2019

12%

Source: White House OMB Mid-year Budget Report at http://www.whitehouse.gov/omb/assets/fy2010_msr/10msr.pdf

In the 70s and 80s, When the Deficit Rose, Only High Interest Rates Dampened Inflation

16% 6%CPI Annual % changedeficit (-surplus) as % of GDP

Only High Interest Rates Dampened Inflation

12%

14%

4%

5%

8%

10%

CPI

3%

4%

4%

6%2%

0%

2%

0%

1%

0%

1970

1975

1980

1985

1990

0%

Will Inflation and Interest RatesRepeat the 1980 85 Pattern?

14%

L/H Net Rate, Gen'l Acct 10-Year Treasury Note

Repeat the 1980-85 Pattern?

12%

14%

8%

10%

4%

6%

2%

980 81 82 83 84 985 86 87 88 89 990 91 92 93 94 995 96 97 98 99 000 01 02 03 04 005 06 07 08

09F

10F

11F

12F

13F

14F

15F

16F

17F

18F

19F

1 1 1 1 2 2 020

1 1 1 1 120

1 1 1 1 1

Forecasts: Office of Management and Budget, Mid-Session Review, Fiscal Year 2010.http://federalreserve.gov/releases/h15/data/Annual/H15_TCMNOM_Y10.txt ; I.I.I. speculation for 2016-19

H W ll A M tHow Well Are Most People HandlingPeople Handling

RecentRecent Circumstances?Circumstances?

Not WellNot WellThey’re Livingy g

Close to the Edge

“How Long Could You Go Without Your Job Before Experiencing Significant Financial Hardship?”Experiencing Significant Financial Hardship?

40% up to 1 week

30%

35% up to 1 month

up to 4 months

up to 1 year

36.3% 36.8%20%

25%

erce

ntag

e

p y

over 1 year

26.3%21.9%

18.8%14 5%15.6%

10%

15%Pe

11.9%7.9%

14.5%10.0%

0%

5%

families with children families with no childrenfamilies with children families with no childrenSource: Jacob Hacker, The Great Risk Shift, rev. ed., Oxford University Press, New York, p. 102, citing a Gallup survey published in April 2003. Hacker notes that these results are after controlling for demographic variables such as age, income, race, education, and gender.

Trend: Growing Chance That a Family’s I Will D B 50% MIncome Will Drop By 50% or More

• The income instability yrisk has been rising for three decadesE t it t t• Even at its most recent “best” (at the height of the prosperity of the 1990s), the risk level exceeded all pre-1980 levelslevels

Source: Jacob Hacker, The Great Risk Shift, (New York: Oxford University Press), 2006, pp. 2, 14-15.

Ordinary Life InsuranceLapse Rates 1996 2008Lapse Rates, 1996-2008

9.0% Was the 2002 spike in lapse rates related

2008-09 recession; curve will likely

8.0%

in lapse rates related to the March 2001-

November 2001 recession?

curve will likely continue up in 2009

6 1% 6 1%

6.5%

6 1%6.4% 6.2%

7.1%

6.4%6.7%

6 1% 6 2%6.5% 6.6%

6 2%

7.0%

5.9% 6.0%

5.6%

6.1% 6.1% 6.1% 6.0%6.2%

5.9%6.1% 6.2%

5.9% 5.7%5.4%

4.9% 4.9%5.1%

6.2%

5.0%

6.0%

4.9% 4.9%

4.0%1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

by number of policiesby amount of insurance

Sources: NAIC Annual Statements, p. 26 line 15 (lapses) and average of lines 1 and 21, from National Underwriter HighlineData; I.I.I. calculations

Policy Loans Increase During/Followinga Recession but Also in Boom Times

$120 $16 000

Policy Loans Nominal GDP

a Recession, but Also in Boom TimesBillions in Loans GDP, Billions

July 1990-

$100

$120

$14,000

$16,000July 1990-March 1991

recessionJuly 1981-November

1982

$80

$100

$10,000

$12,0001982 recession

$60

$

$6,000

$8,000

March 2001-November 2001

$40

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 9*

$2,000

$4,000November 2001

recession

198

198

198

198

198

198

198

198

198

198

199

199

199

199

199

199

199

199

199

199

200

200

200

200

200

200

200

200

200

2009

Sources: http://www.bea.gov/national/xls/gdplev.xls , ACLI Life Insurers Fact Book 2008, p. 11.

Th Old G i Mi hThe Older Generations MightBoost Economic Growth andBoost Economic Growth and

Life/Annuity PurchasesLife/Annuity Purchasesby Continuing to Worky g

More Workers Are DelayingTheir Planned RetirementTheir Planned Retirement

100%Percent

66%

84%79%

89%

75%70%80%90%

100%

66%

50%60%70% 2003

20042005

16%21% 18%

28%32%

20%30%40% 2008

2009

0%10%20%

% h h d ti t i % h h d t d l ti t% who changed retirement age inpast 12 months

% who changed to delay retirement

Source: EBRI Issue Brief No. 316, (April 2009), p. 14

Age When Workers Planto Retireto Retire

60%Percent of Workers

50%

41%50%

31%31%37%

26%26%31%

30%

40% 199419992004

11%

18%22%23%

10%

20%20042009

11%

0%5%6%

10%

0%

10%

0%before age 65 at age 65 age 66 or older never retire

Source: EBRI Issue Brief No. 316, (April 2009), p. 14

Past and Projected Labor Force Participation Rates, by Age Groupp , y g p

75%Participation Rate

69.6

%

%70.1

%

.5%

%

2006 201658

.2%

6350%

28.8

%

%

34.6

%

5.1%

%

25%

19.2

%

9.5%

4.4%

25

14.7

%

7.6%

0%55 64 55 64 65 74 65 74 75+ 75+men 55-64 women 55-64 men 65-74 women 65-74 men 75+ women 75+

Source: Mitra Toossi, “Labor force projections to 2016: more workers in their golden years,” Monthly Labor Review, November 2007, Table 3.

Labor Force Participation, Ages 55d O 2006 Q2 2009 Q3and Over, 2006:Q2-2009:Q3

15Labor force participation by workers—

especially women—age 55 and over hasLabor Force (millions)

1 4.2 4.3

14.3

14.3

4.2

4.214

15

men women

especially women age 55 and over has grown in spite of the current recession.

( )

.9 .0

13.8

13.8

13.6

13.4

13.4

13.2

13.2

14.

14 1 1 1 14 14

13

14 men women

6 .8 1.9

12.0 12

.2

12.3 12

.5

12.5 12.6 12

.8

12.8 12

.

13.1

12

11.4 11.6 11

.

11 1

11

006:Q

200

6:Q3

006:Q

400

7:Q1

007:Q

200

7:Q3

007:Q

400

8:Q1

008:Q

200

8:Q3

008:Q

400

9:Q1

009:Q

200

9:Q3

2006

2006

2006

2007

2007

2007

2007

2008

2008

2008

2008

2009

2009

2009

Source: US Bureau of Labor Statistics, http://www.bls.gov/web/cpseed6.pdfseasonally adjusted quarterly averages

People Over 60 areI i l B iIncreasingly Buying

Individual Life InsuranceIndividual Life InsuranceThey’re the only age group like thisThey re the only age group like this

Percent Change* in Applications for Individual U.S. Life Insurance Policies,

M 2007 S 2009

16%

May 2007- Sep 2009The 0-44 age group still represents

the majority of the premium Ages 60 and over is the

10%

12%

14%j y p

volume, but this has been declining over time.

only group consistently increasing

life insurance

6%

8%

10%

vs P

rior Y

ages 0-44

applications.

0%

2%

4%

% C

hang

e v g

ages 45-59ages 60+

-6%

-4%

-2%

May 07Jul 07Sep 07Nov 07Jan 08Mar 08May 08Jul 08Sep 08Nov 08Jan 09Mar 09May 09Jul 09Sep 09

-8%

-6%

*vs. same month, prior yearSource: MIB Life Index, monthly releases

Not Just Retirees: Many People Don’t Know Where They’re Going or How to Get ThereWhere They re Going or How to Get There

Source: National Underwriter (L/H), June xx, 2008, p. xx

Cover Art for July/August 2008 I f AARP B ll tiIssue of AARP Bulletin

Source: AARP Bulletin, Vol. 49, No. 6 (July/August 2008)

C l iConclusion:P l N d H lPeople Need Help

C t ti Th i OConstructing Their Own Financial Safety NetFinancial Safety Net

Step 1:Give Them a Spending TargetGive Them a Spending Target

Wh P f IWhat Percent of IncomeSh ld P l S dShould People Spend

t Ato AssureTheir Financial Security?Their Financial Security?

As a Percent of Personal (Gross) Income,Personal Insurance Premiums Are Down

8.2%

Personal Insurance Premiums Are Down

8.0%

8.1% Personal Insurance Premiums include all Life, A&H,

Annuities, and Personal / l

7.8%

7.9%Property/Casualty Insurance.

7.6%

7.7%

7.4%

7.5%

2001 2002 2003 2004 2005 2006 2007 2008Sources: http://www.bea.gov/national/xls/gdplev.xls , Best’s Aggregates and Averages, Life/Health, 2009 Edition, p. 173 and Property/Casualty 2009 edition, p. 573., I.I.I. calculations

L-H IndustryyProfitability

L/H Industry Net Income, 1995-2008

$32.2$35.9 $36.2

$31.9$35$40$45

$13.6$19.2 $21.7

$18.0 $20.9 $22.2

$9.8

$26.6$3 9

$15$20$25$30$35

$4.1

-$10-$5$0$5

$10

Billio

ns

$-$30-$25-$20-$15$10B

2006 net income rose only 0.8% despite

-$50.6-$55-$50-$45-$40-$35

y p10.5% net premium growth, because

surrenders grew 20.4%, disability benefits grew 21.6%, and total expenses grew 13.1%.

$$

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: NAIC Annual Statements, p.4, line 35, from National Underwriter HighlineData.

Effect of Realized Capital Gains/ Losses on Net Income 1995 2008Losses on Net Income, 1995-2008

$35$40

6 9.2 1.7

.0 0.9

2.2

26.6

$32.

2

$36.

0

$36.

2

$31.

9

$$15$20$25$30$35

L/H NetIncome

$13.

6

$19

$21

$18

$20

$22

$9.8

$4.1 $ 2 $ $

-$10-$5$0$5

$10

L/HRealized

-$51

.7

-$35-$30-$25-$20-$15

RealizedCapitalGains(Losses)

-$55-$50-$45-$40-$35

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: NAIC Annual Statement data, Summary of Operations and Exhibit of Capital Gains (Losses)from Highline National Underwriter

Life Insurer Operating Expenses, (excl. Commissions) 1995-2008(excl. Commissions) 1995 2008

$200,000$ Millions

067

$150,000

4 541

42,5

90

$165

,243

46,1

49 $193

,0

711

72 2,93

8

49,7

95

711

41,9

20

154,

559

432$100,000

$105

,804

$126

,5

$14 $

$14

$127

,7

$116

,27

$132 $1

$122

, 7

$14 $1

$121

,4

$50,0001995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: Best’s Aggregates and Averages, Life/Health, 2009 Edition

Summary & Conclusiony• The capital markets are still weighed down by the p g y

housing market and lenders’ reluctance to lend• Given the present and likely future unemployment

picture, the economy is unlikely to show signs of recovery in the near term

• Sales of individual life insurance policies have• Sales of individual life insurance policies have been trending down for 6 years

• Trend toward increasing labor force participationTrend toward increasing labor force participation by those over 55 seems likely to continue

These people have been increasingly buying life iinsurance

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