NAIC Panel Seeks to End Industry Divide Over Indexed Universal Life Illustration Standards
November 18, 2014 by Thomas Harman
WASHINGTON – A National Association of Insurance Commissioners’ panel is offering a compromise to end an industry divide on how companies should present indexed universal life insurance products to consumers.
The NAIC life actuarial task force has been the site of debate about how to provide information about IULs to consumers through illustrations as the American Council of Life Insurers and a coalition of individual major life insurers have battled over different approaches (Best’s News Service, Sept. 22, 2014).
Any changes ultimately would be part of the Life Insurance Illustrations Model Regulation, whose passage by the NAIC predates IUL products. The model regulation currently provides actuaries with guidance on how general account life insurance products should be illustrated, but does not provide them with any guidance for IULs because they have a non-guaranteed index.
During the task force’s meeting at the NAIC’s Fall National Meeting in Washington, Frederick Andersen, a life actuary at the Minnesota Department of Commerce, issued a seven-point compromise IUL illustration standard proposal that he said should blend aspects of the ACLI and coalition methods, as well as those offered by regulators.
One of the features of Andersen’s plan is that it should result in maximum IUL credited rates that would be 1.25%-2.25% higher than traditional universal life credited rates. Andersen’s recent memorandum on the subject said it would be possible to use either the historical-based method backed by ACLI or the option-based approach supported by the coalition to meet the concept criteria.
Andersen is also looking to create a side-by-side midpoint illustration showing credited rates that are lower than traditional universal life policies. He wants to minimize the chances of loopholes or other undesirable consequences; cap the illustrated credit rate on policy loans to the rate being charged on loans as shown on the illustration; and strengthen the actuary’s role in establishing the method for IUL illustrations.
IULs have come to the fore in part because they are among the life insurance industry’s fastest-growing products. The ACLI led the initial charge to develop an illustration plan, but several companies that are not selling the IUL products — MetLife, New York Life, Northwestern Mutual and OneAmerica — later broke from those talks and submitted an alternative plan.
Part of the difficulties between the ACLI and the proposal were over interest rates that the ACLI proposed. The ACLI sought to illustrate policy levels at two rates — a user-selected illustration interest rate and a second rate that displays a guaranteed interest rate and a guaranteed minimum. The ACLI rate would have been capped the lowest of three levels — a 25-year average look-back interest rate under current index parameters, a 10% annual index rate, or what is justifiable actuarially.
Robert Samuelson of MetLife told Best’s News Service the ACLI plan projected very high rates of return that would be misleading to consumers. During panel discussions, he was critical of the 25-year look-back that was part of the ACLI’s method, calling it “hypothetical historical look-backs.”
The coalition’s plan was modeled on investing general account assets and using the profit to buy hedges that transfer indexed credit risk to third parties. They argued that carriers could use profits to provide indexed credits, a departure from traditional universal life policies that used a crediting rate to pass earnings to policyholders.
The ACLI offered no comment about Andersen’s plan after the meeting, which featured advocates of the ACLI and coalition plans fending against critiques of their prior efforts.
