Aging Societies And Retirement: A Ticking Time Bomb

"Reinventing Retirement Asia: Enhancing the Opportunities of Aging AARP Conference, Tokyo, Japan Workshop 6: The Gold Power of the 50 Plus Market

Gregory A. Boyko President & CEO Hartford Life Insurance K.K. March 16, 2007 The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Agenda

Global demographic trends Declining workforces Strain on government and corporate pensions Public concern about retirement Shifting retirement burden to individuals Need for retirement education and credible financial advice

The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: The Hartford Has Honored Its Promises Since 1810
The Hartford Financial Services Group is an Insurance and Financial Services Industry Leader
Honoring promises since 1810 Over 30,000 employees worldwide, over 650 in Japan Strong insurer financial strength ratings A.M. Best A+ Fitch AA Standard and Poors AAMoodys Aa3

Leading provider of: mutual funds; annuities; life insurance and group benefits; automobile and homeowners products; business property-casualty insurance Growing international operations in Japan, United Kingdom and Brazil Hartford Life Insurance K.K. is the #1 provider of variable annuities in Japan Over 450,000 policyholders in Japan
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Aging Societies And Retirement: Increasing Life Expectancies

People in developed countries are living longer and populations are aging. This is putting a strain on public and corporate pension plans.
Life Expectancies
95 90 85 80 75 70 65 60 World U.S. U.K. Japan 64.7
10% 0% World U.S. 2005 2025 U.K. 2050 Japan

Percent of Population over 60

88.3
60% 50% 48% 34%
28% 37%

82.4 77.3 74.7 78.3

83.5

81.9
40% 30% 20% 10% 26%
16% 25%

31% 17%

26%

21%

2005

2050

Source : United Nations Population Division: World Population Prospects: The 2004 Revision

The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Declining Workforces Will Strain Pensions

Aging populations make it difficult for pension systems to provide funds for a significantly older, non-working population.
Worker-to-Retiree Ratios*
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2000 2010 2020 2030 2040

U.S.

U.K.

Japan

Source: Watson Wyatt Aging Vulnerability Index, 2003

* Ratio of Workers (aged 15-59) to Retirees (60 and over)

The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Fear of Insufficient Funds in Retirement

The majority of people are concerned about having enough money to maintain their standard of living in retirement, particularly in Japan.
91%

Somewhat concerned Very Concerned Extremely Concerned

73% 67%

33%

42% 35%

39%

20% 24% 11%

Japan U.S.

18% 10%
U.K.

Source: Hartford Life Insurance Retirement Survey, September 2006 Base: People aged 45 and older in Japan (1,040) the US (757), and the UK (756).

The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Important Retirement Income Sources

Public pensions are still considered the most important source of retirement income.
72% 64% 65% 45% 43% 31% 35% 57% 46% 43% 32% 24% 23% 16% 21% 9% 52% 41% 39% 25%

68%

Japan

U.S.

U.K.

Public Pension Bank or Postal Work Part or Deposits / Full Time Investments

Defined Benefit Employer Pension

Home / Real Life Insurance Defined Cont. Estate Employer Pension

Source: Hartford Life Insurance Retirement Survey, September 2006 Q: Please rank the top three of the following sources of retirement income, in terms of each ones importance to you. (% selecting first, second, or third most important)

The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Confidence in Public Pensions is Low

Yet the majority of people in Japan, the U.S. and the U.K. lack confidence that public pension income will be sufficient.
89%

Not too confident Not at all confident

78%

42%
51%

36%

30% 47% 21%

Japan U.S. U.K.

42%

Source: Hartford Life Insurance Retirement Survey, September 2006 Q: How confident are you that your government-sponsored pension plan will provide you with sufficient income to maintain your current standard of living? Base: Total Respondents

The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Rising Public Debt in Japan

The rise of government debt levels to 176% of GDP has contributed to widespread concern about the public pension system.
Public Debt as a Percentage of GDP Rising Japanese Public Debt
(US$ Trillions )

Japan Germany United States Switzerland United Kingdom China South Korea Australia 0% 22% 21% 14% 25% 50% 51% 42% 67% 65%

176%

2006*7 2005 6 2004 5 2003 4 2002 3 2001 2 2000 1 $5.5 $5.3 $4.8 $4.3

$6.9 $6.7 $6.2

75% 100% 125% 150% 175% 200%

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

Source: CIA World Factbook estimates

Source: Ministry of Finance, Government of Japan * As of November 30, 2006

The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Responses in Japan - Higher Individual Burden

The government and corporations have largely responded by reducing benefits, resulting in increased individual burden.

Government
Retirement age raised to 65 National health care co-payments raised to 30% Consumption tax raised to 5% Mandatory long-term care insurance launched

Corporate
Shift to defined contribution plans Less reliance on defined benefit pensions

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Aging Societies And Retirement: Shifting Balance to Individual Responsibility

The burden for retirement income is shifting to individuals.
Government Pensions Corporate Pensions

Individual Savings & Investment

Working in Retirement

Retirement Income
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Aging Societies And Retirement: Solutions for Individuals are Varied

Solutions increasingly depend on individual efforts.

Working in Retirement
Delay retirement, work longer Flexible work arrangements (telecommuting)

Individual Savings & Investment

Investment trusts, variable & fixed annuities Supplementary health insurance products Retirement education & investment advice

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Aging Societies And Retirement: Retail Investment Product Demand in Japan

Strong demand for investment trusts with regular payments. Strong demand for variable annuities with guarantees.
Investment Trust Assets
(US$ Billions*)

Variable Annuity Assets

(US$ Billions*)

700 600 500 400 300 200 100 0

120

110.4

600 478 313 322 357

100 80 60 40 20 0 5.2 2002 2003 2004 2005 2006 36.5 17.4 70.4

2002

2003

2004

2005

2006

Sources: Investment Trust Association of Japan, data as of December 31 annually Hoken Mainichi (Daily Insurance) Newspaper, data as of September 30 annually

*Converted from Yen at $1.00 = 115

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The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Personal Financial Assets - Idle Cash in Japan
Japanese have over $12 trillion in personal financial assets - 51% in cash and deposits.

Japan
Other: 4.6% Cash & deposits: 51.3% Insurance & Annuities: 26.6% Stocks: 10.7% Mutual Funds: 4.0%

US
Other: 3.4% Cash & deposits: 13.3% Insurance & Annuities: 31.4% Bonds: 7.1%

Stocks: 30.8%

Mutual Funds: 14.0%

Bonds: 2.8%

Source: Bank of Japan, The Central Council for Financial Services Information, US-Japan Flow of Money Comparison, 2006 3rd Quarter

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The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Retirement Planning and Investing in Japan

Japanese are less confident and more risk averse.
Confidence in Financial Planning
74% 72%
Not Too Confident Not at All Confident

Tolerance for Risk

Fairly Risk Averse/ Accept Small Gain Completely Risk Averse/Accept Minimal Gain

53%

30%

34%

42%
54%

48%

35%
24% 22% 21% 8% 10%

31% 18% 13%

11%

Japan

U.S.

U.K.

Japan

U.S.

U.K.

Source: Hartford Life Insurance Retirement Survey, September 2006 Q: How confident are you in your knowledge and abilities with financial planning? Q: Which of the following phrases best describes your approach towards risk and rewards when you choose investments?

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The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Sources of Credible Financial Advice in Japan

Japanese are far more unsure of where to turn for credible financial planning advice.
Japan US UK

46% 40% 35% 33% 24% 18% 26% 23% 16% 15% 26% 17% 11% 2% 18% 7% 7% 4% 19% 13% 38%

News Media

Personal Contact

Fin. Plnr. / Tax Acct.

Bank Rep

Securities Firm

Ins. Agent

Don't Know Where to Turn

Source: Hartford Life Insurance Retirement Survey, September 2006 Q: What or who do you rely on for credible financial planning advice? Base:Total Respondents

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The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Financial Assets Held By Older Generations

Nearly 80% of Japans 13.1 trillion dollars* in personal financial assets are held by individuals aged 50 and over.
Japanese Financial Asset Distribution by Age Group
50-59 28%

60-69 35%

40-49 15%

30-39 20-29 6% 1%

70 and over 15%

Source: Bank of Japan, The Central Council for Financial Services Information, 2005

*Converted from Yen at $1.00 = 115

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The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Variable Annuities Suited to Older Generations

Variable annuities are a great product to meet Japanese retirement planning needs. Guarantees protect principal Option for guaranteed lifelong income Tax deferral and estate planning benefits Ability to switch funds Diversified funds allow stable growth

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The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: The Hartfords Variable Annuity Growth in Japan
The Hartford's Variable Annuity Assets Under Management in Japan (US$ Billions) 28.3
26.7 21.9 16.5

29.7

30 25 20 15 10

11.1 8.1 4.8

5
0.5

1.0

2.3

0 Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Dec. 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2006

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The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: The Hartford is Committed to Financial Education

Hartford Life Insurance promotes financial education through: Publications about annuities and investing Educating the media and other stakeholders Public opinion surveys about retirement Seminars for customers and the public

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The Hartford Financial Services Group, Inc.

Aging Societies And Retirement: Summary: Defusing The Time Bomb

Increasing pressure on public and employer safety nets Retirement responsibility shifting to individuals Individuals concerned, but not sure what to do Need for financial education and investment advice The Hartfords variable annuities are helping customers prepare for retirement

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The Hartford Financial Services Group, Inc.