Task Force Evaluates ‘Limited’ Revision to Life Insurance Illustrations Model – InsuranceNewsNet
A task force of state regulators announced on Monday that it will revise the rules governing indexed universal life illustrations — with an added twist.
The Actuarial Working Group on Life has opened a comment period on Actuarial Directive 49-A, through September 6 – repeating a comment period just ended by the Indexed Universal Life Illustration subgroup. LATF oversees the subgroup in the hierarchy of the National Association of Insurance Commissioners.
But LATF added a twist to its comment period: “plus consideration of limited and targeted revisions to the Model Life Insurance Illustration Rule (#582).”
The overall effort to regulate the life insurance illustration model was an acrimonious process that took years before the NAIC adopted it in 1995. In the decades that followed, insurers proposed various product features that have rendered illustration guidelines ineffective, consumer advocates say.
“Regulators are trying to plug leaks in a faulty infrastructure that consistently produces misleading information for consumers,” said Birny Birnbaum, executive director of the Center for Economic Justice. “The current illustration regime allows insurers to ‘illustrate’ investments in a way that is not permitted for any other type of investment.”
But regulators have been reluctant to reopen the global artwork model in recent years. Insurers would be “fiercely opposed” to reopening #582, Birnbaum said.
Instead, the NAIC adopted AG 49 in 2015, but insurers quickly circumvented it by offering IUL products with multipliers and bonuses. This led to AG 49-A, adopted at the end of 2020 after this LATF directive: “designs with multipliers or other improvements shall not illustrate better than designs without a multiplier”.
In another key change, the IUL illustration credit rate was set 50 basis points higher than the policy loan rate. In AG 49, the credited rate could be 100 basis points higher than the policy loan rate.
Responding to the subgroup’s call for comment, Sheryl Moore of Moore Market Intelligence and Bobby Samuelson of The Life Product Review took the unusual step of co-authoring a letter outlining the issues with AG 49-A. The pair are competitors in the field of product intelligence.
The Moore/Samuelson letter did not support the need for immediate regulatory action. Some IUL fixed interest bonuses can generate illustrated earnings more than 60% higher than a base index such as the S&P 500, they wrote.
“This is, in our view, completely inconsistent with the intent of regulators in crafting AG 49-A,” the letter states. “The game now occurring in artwork is similar in effect and ubiquity to the redemption caps and multipliers that proliferated after AG 49 and culminated in AG 49-A.”
Several insurers responded with comment letters to the subgroup, claiming that AG 49-A was successful in its purpose. Allianz resubmitted its February comment letter defending its use of controlled volatility indices (VCIs).
“Since February, equity markets, bond markets, and therefore VCIs have generally performed poorly, but that doesn’t materially change the content of the letter,” Austin Bichler said in an accompanying letter. Bichler is assistant vice president and actuary of Allianz.
“These challenging market conditions highlight the inherent protection of IUL, while demonstrating the additional value that VCIs provide when combined with fixed bonuses,” he wrote.
In the original letter, Bichler said Allianz customers have received credits and other benefits that exceed the insurer’s S&P 500 allocations.
“Treat artwork holistically”
Transamerica submitted a letter approving the reopening of the Global Illustrations model. The insurer also noted that it does not sell any product with an uncapped VCI and fixed bonus – the type of products that reviewers claim are AG 49-A games.
“We can also support committee review of a longer-term, multi-year effort to revise illustrations for all fixed life insurance products, likely involving the reopening of the model,” the letter read. ‘Andrew DeMarco, Head of Life Solutions. for Transamerica. “We believe such an effort should approach artwork holistically across products rather than taking a piecemeal approach.”
Committee A refers to the Life Insurance and Annuities Committee, which oversees the LATF, and would vote to send any model changes to the NAIC Executive Committee for final adoption.
Birnbaum said a limited and targeted reopening of model No. 582 “would not significantly solve the fundamental artwork problem.”
The Request for Comments asks authors to consider four options for AG 49-A:
(a) Attempt a quick fix to the current problem (some companies illustrating uncapped volatility control policies better than S&P 500 capped policies) with a brief review of AG 49-A; it can be discussed with committee A if there are plans to address broader issues with life illustrations;
(b) Make no changes to AG 49-A (allow current practices);
(c) Attempt to revise AG 49A further to address the current concern and any other potential concerns identified; Where
(d) Apply a hard cap on various LUI illustration metrics.
Editor-in-chief of InsuranceNewsNet, John Hilton has covered business and other beats in more than 20 years of daily journalism. John can be reached at [email protected]. Follow him on Twitter @INNJohnH.
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