‘Juicing’ Or ‘Innovative’? IUL Illustrations In The Crossfire

Re-opening the life insurance illustrations model regulation is on the table, state insurance regulators said today, but the group is starting with a narrow look at issues with AG 49. Fred Anderson, acting deputy commissioner of insurance for Minnesota, put forth 23 options, separated into two groups: disclosure-related and beyond disclosure.

The list included re-opening the Life Insurance Illustrations Model Regulation, which would require approval from the NAIC A Committee. The original regulation was debated for years before gaining approval.

Actuarial Guideline 49 was developed in 2015 to provide insurance carriers a more uniform method for calculating maximum illustrated rates on IUL products and to help consumers better understand index life insurance product illustrations.

AG 49 states that: "If an insurer engages in a hedging program for index-based interest, the assumed earned interest rate underlying the disciplined current scale shall not exceed 145% of the annual net investment earnings rate."

Insurers have since developed index performance multipliers and bonuses on IUL products in order to skirt this requirement, some regulators and consumer groups say.

Following the meeting, the NAIC provided more information on the four options on which the subgroup is accepting comments:

• Item #13 proposes to clarify AG 49 to ensure bonuses and multipliers are included as aspects of the disciplined current scale 145% test that are constrained.

• Item #14 proposes to generally limit the use of variable/index loans. For example, including all policy credits in the 100 bp limitation calculation specified in AG49, and not being allowed to illustrate at rates greater than fixed loan rates. Another potential aspect of this proposal is disallowing illustrating variable/index loans that are included as policy features, similar to the way certain index accounts are treated under AG49.

• Item #15 proposes to have consistent treatment of various IUL product types in terms of illustrations and disciplined current scale testing.
  Current practice by some insurers is that bonuses and multipliers are applied after the AG 49 crediting rate and thus not subject to its limitations, whereas if the same implicit or explicit charges were used to fund higher cap rates and participation rates, they would be subject to AG 49’s limitations.

• Item #16 proposes to apply AG 49 constraints to all factors leading to higher accumulated values and not just to the credited rate factor.

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