Get your inforce ledgers

[PrivClientSG]

Well, May 1 has come and gone. Maybe people are oblivious, maybe they don't know, don't care, who knows. If you don't think AG 49-B, which took effect on May 1, has any bearing on UL, IUL, etc. -- then stop reading. You'll just be wasting your time.

On May 1, NAIC's AG 49-B took effect and requires changes and certain guidelines in illustrations for universal-type products. Yes, it specifies IUL illustration rates, but it can affect universal policies in general. A couple of highlights seemed to trigger some strong concerns, vis a vis, moving forward, index accounts/rates can no longer be illustrated above the benchmark index. That's a very good thing! In addition, the maximum illustrated rate must include bonuses. Another very good thing! Instead of 6% with a 1% bonus, which you illustrate as 7% -- now you have to back-out the bonus, illustrate at 5%, include the 1% bonus, and now you are illustrating at 6%. Good, good, good! There's also a limit to the maximum you can illustrate on the respective IUL index/portfolio, relative to what it's earning and what you can illustrate!

Personally, I view AG 49-B merely as a temporary step, a temporary, work-in-progress step toward a more permanent solution. NAIC, in my humble option, must, absolutely must, revisit and readdress the entire regulation on illustrations.

More important, get your inforce ledgers. Don't figure out "how to make them look good" or "better" -- run them to see how sound they are under different scenarios, how the UL-chasis holds up and behaves under different scenarios, etc.

Good luck everyone!

 

[scagnt83]

moving forward, index accounts/rates can no longer be illustrated above the benchmark index.
....
In addition, the maximum illustrated rate must include bonuses.

Boom goes the dynamite!!!

Say goodbye to 50% of the hybrid index options currently on the market.

Say goodbye to the double digit annual increases in IUL sales.

 

[PrivClientSG]

It's interesting, and very telling, and transparent -- whenever NAIC attempted reforms, revisions, universal standards, etc., and whatever those efforts were -- you could see the soldiers lining up on the two sides of the battlefield. When the first efforts were made for standardized "NAIC-conformed" illustrations back in the 90's, it was the UL carriers and the VL product pushers who opposed it, and their reasons for opposing it almost sounded like they made sense (if you were an imbecile, LOL).

When 528-1 came around, the aggressive, extreme, etc., UL carriers opposed it once again, and had the same reasons, and a few more -- as they saw this effort coming years in advance. And so on and so on and so on.

Steve Leimberg wrote an article on the the growing problems that inforce UL policies were having, and the increasing percentage of policies having problems -- and the carriers that he discovered that were having these problems at a much higher rate than the norm, the rest of the companies, etc. -- were the very same companies that opposed all of NAIC's efforts for reform. I wonder why.

Look, I don't have a problem with UL. I have a problem with carriers that had/have egregious and abusive administration, management, and policies that has ended up hurting policyholders. I have a problem with agents who drank the kool-aid, didn't do the work, and took the path of least resistance and sold "minimum" funded UL policies, which by design were going to fail! I have a problem with agents who didn't do prudent, professional, and proper policy service and management, and go back and tell these policyholders that more premium was needed...and so on and so on and so on.

 

[scagnt83]

Just to show the impact, North American released an info piece showing the new maximum rates on the various Indexes.

Traditional Indexes barely changed, or did not change at all.

The Hybrid Index dropped from 6% to 3.6% max illustrated rate.

 

[PrivClientSG]

Just to show the impact, North American released an info piece showing the new maximum rates on the various Indexes.

Traditional Indexes barely changed, or did not change at all.

The Hybrid Index dropped from 6% to 3.6% max illustrated rate.

Just curious -- do you have a "mirror image" set of illustrations showing before and after?

So the traditional indexes didn't change -- OK, I get that. But being that the hybrid index dropped from 6 to 3.6 -- how does a specific policy behave at 3.6? I don't sell any NA products. Just curious what a before and after would look like. Many times I've decoupled, taken apart, etc., UL illustrations, and it shows the overall weakness of the product design -- and that weakness can be seen from the "funding" perspective, the interest rate illustrated perspective, and the mortality perspective; the latter I tend to look at on my own software, spreadsheets, etc. Thanks for the heads up!

 

[scagnt83]

Just curious -- do you have a "mirror image" set of illustrations showing before and after?

I do not have one readily available. I never sold the hybrid indexes on IUL so the only illustrations I might have are those given to me by prospects in competitive situations.

I think I still have access to Midland illustrations. If I do, I will run one at 3.5% and let you know.

 

[scagnt83]

how does a specific policy behave at 3.6?

Most likely it would crash after 20 years.

Either way, it would not be something anyone in their right mind would purchase.

I have not sold Sammons in years now. But last time I stress tested a Midland IUL, it crashed around 3.5% if I remember correctly.

Most IULs on the market these days will crash below 4%, especially around 3.5%.

Even if it doesnt, its not a positive return on CV at that point.

 

[scagnt83]

One possible loophole is the way they treat bonuses. I have seen carrier material saying that "index specific bonuses" are illustrated on top of the max rate.

I THINK this means on the actual index side and not policy side. Securian is an example of this, they have/had an Index that gives a bonus within the index itself... non-guaranteed.

So that is the next step the NAIC will have to take. Perhaps some type of model regulation for how the index itself is structured.

 

[scagnt83]

Here is a link to NAs announcement on it. They show before/after max rates.

This pdf has that line about "index specific bonuses"

https://agency.concoursefinancial.com/wp-content/uploads/North-American-AG-40-changes-1.pdf

 

[PrivClientSG]

Most likely it would crash after 20 years.

Either way, it would not be something anyone in their right mind would purchase.

I have not sold Sammons in years now. But last time I stress tested a Midland IUL, it crashed around 3.5% if I remember correctly.

Most IULs on the market these days will crash below 4%, especially around 3.5%.

Even if it doesnt, its not a positive return on CV at that point.

That's at the current mortality schedule/charges, right? Can't happen. Very unfortunate how this was sold and then managed (not managed actually).

No, it can't be a positive return.