NAIC Committee Approves New Actuarial Guideline for Indexed Universal Life Illustration
June 9, 2015 by Thomas Harman
A National Association of Insurance Commissioners’ panel has approved a guideline that would provide insurers with a standard means of calculating illustrated rates for indexed universal life policies, despite insurer objections about implementation deadlines.
The changes approved June 4 by the Life Insurance and Annuities Committee are based on a guideline developed by its Life Actuarial Task Force that focused on the way insurers calculate the interest rates illustrated on policies offered to consumers (Best’s News Service, March 27, 2015). The LATF made final changes to the document during the NAIC’s Spring National Meeting in Phoenix and in April approved the document for the NAIC committee’s consideration.
Actuarial Guideline 49 goes to NAIC Executive Committee for final approval during a conference call whose date is undetermined.
Indexed universal life is a permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index. The policies usually have a minimum guaranteed fixed interest rate component along with the indexed account option.
Insurers use different calculations to reach a rate that is displayed on illustrations for consumers. AG 49 would require companies to calculate a benchmarked indexed account. They would do so by setting an average annual rate for the benchmark indexed account by using a series of 25-year rolling averages that would begin in 1950. The American Council of Life Insurers said in an email it believes AG 49’s implementation would result in roughly a 6.85% illustrated rate on indexed universal life policies.
LATF Chairman Mike Boerner urged the committee to pass the guideline. He said the first effective date for part of the guideline is Sept. 1, with some other portions of the guideline becoming effective March 1, 2016. He said the guideline will result in illustrated rates that are more uniform and more easily achieved. Boerner said the LATF has formed a new subgroup that will consider some additional items that could be brought back to the committee within the next year as an update to the current document.
AG 49 will provide a more realistic illustration of rates for increasingly popular universal life products, Fred Andersen, a life actuary at the Minnesota Department of Commerce, said in written comments. Current non-uniform illustrated returns in some cases were unrealistic to achieve, he wrote.
Insurance industry representatives from Nationwide and Allstate sought to have implementation dates for calculation of rates for both the illustrated and the disciplined current scales delayed from Sept. 1 to Jan. 1, 2016, but the panel did not entertain a motion to do so.
Gayle Donato, associate vice president at Nationwide, said her company wanted more time to make software changes that would be necessary in company models. Nationwide’s sales force has questions about AG 49. “They want training and they want to understand the ‘Why?’ behind the changes,” she said.
John Mathews, counsel at Allstate, sent the committee a letter saying Allstate Insurance Group supports the guideline. The changes would require Allstate to institute and complete programming to separate new business sold from all other company business once the guideline takes effect. Such change “is more involved than it may seem on the surface. We believe that this will be true as well for many other companies.” Even relatively small programming projects could take several months to complete and because the draft changes were not finalized, Allstate would need more time to make the changes asked, Mathews wrote.
Axa Equitable Life Insurance Co. objected to AG 49 and sought changes to make the guideline provisions apply to all new business and in-force life insurance illustrations and also to change language in the guideline that would clarify illustration of account charges. Axa Equitable said it has a popular feature in its IUL policies allowing consumers to pay additional account charges in exchange for a higher index cap, which provides a higher return in strong markets. The guideline, said Brian Lessing, Axa Equitable senior director and actuary, requires the insurer to illustrate a policy at the higher account charge without showing the higher credited rate associated with that charge.
