In mid-June of 2015, the NAIC adopted Actuarial Guideline 49, created to govern Indexed Universal Life Sales Illustrations. AG49 establishes three primary goals to be applied in two separate phases.
Effective September 1, 2015
- Introduce Guidelines for maximum illustrated index credited rates. In order to meet
the AG49 objective of defining a maximum illustrated index credited rate, the Guideline created the notion of a Benchmark Index Account (BIA). In simple terms, the BIA is a one- year point-to-point S&P 500 index account with an annual return cap, a 100% participation rate, and a 0% annual floor, using the S&P 500 price level only (no dividends on the underlying stocks). AG49 then defines a maximum illustrated annual index credited rate based upon an average 25-year lookback calculation.
Effective March 1, 2016
- Policy loan leverage will be limited for index or “participating” loans. AG49 did not outlaw Participating Loans under IUL. Instead, AG49 took a simplistic approach of limiting the difference between the assumed illustrated credited rate on borrowed amounts and the illustrated loan charged rate on those same funds. This limit will be a difference of 100 basis points (annually, presumably). It should curtail much of the more aggressive Participating Loan illustration activity.
- Additional disclosures, not required in non-indexed UL illustrations, will now be required. AG49 requires supplemental alternative disclosures in addition to the basic illustration ledger. An Alternative Scale ledger must be shown assuming all premiums are deposited into the IUL’s fixed account. If any policy loan activity is illustrated in the basic illustration, the Alternative Scale must show the rate credited to borrowed funds to be no greater than the loan rate charged on those funds (i.e., no participating loan leverage). Additional disclosures include, showing for each Index Account illustrated, a table of historical
index changes over the latest twenty-year period, side-by-side with the corresponding hypothetical IUL credited interest rates.
How will the industry react to AG49? Here are some likely directions:
- There will be a reduction in the number of index account offerings, with the S&P 500 gaining even greater prominence. Non-S&P 500 Index Accounts will use different methods to promote their advantages.
- PersistencybonusesonIULcontractswillexpandandnewconfigurationswilldevelop additional credited interest, refunds or reductions of COIs or loads in later years.
- Artificially high caps may be off set with higher loads, though to a more limited degree. High caps would result in higher maximum illustrated index credited rates, even though the bottom-line illustrated accumulation amounts may not show any greater competitiveness.
The adoption of AG49 was intended to target specific concerns regarding IUL illustrations. In many ways, AG49 is only a beginning. There are still numerous areas left to carrier judgement. As IUL products adjust to the new guidelines, remaining and new concerns will most likely need to be addressed.
For further commentary on AG49, see the full-length article: “Actuarial Guideline 49 – A Closer Look,” by Tim Pfeifer, President – Pfeifer Advisory (pfeiferadvisory.com).
Solid operating performance. Strong competitive position.
On July 2, 2015, A.M. Best reaffirmed the A+ (Superior)financial strength rating and issuer credit ratings of aa- for Banner Life Insurance Company and William Penn Life Insurance Company of New York. Banner and William Penn are collectively referred to as Legal & General America (LGA). The outlook for all ratings is stable.
The press release said that “the rating actions reflect LGA’s strong competitive position in the U.S. term life marketplace, where it currently ranks fourth as measured by new term life annualized premiums. The ratings also reflect LGA’s solid operating performance as measured on both a U.S. GAAP and International Financial Reporting Standard (IFRS) basis, which has been enhanced by LGA’s efficient expense structure, its variable cost distribution network strategy and disciplined approach to mortality underwriting.
A.M. Best recognizes LGA’s strategic importance to L&G, which has provided explicit support when needed to sustain LGA’s new business growth. A.M. Best notes that L&G derives significant diversification benefits from LGA’s mortality business, which acts as a natural hedge to L&G’s life annuity business.”
See the full press release for LGA here.
See the full press release for L&G Group here.
More information on Best’s rating criteria can be found here.
An online version of the rating brochure for Legal & General America is in production at A.M. Best and will be posted to our consumer and agency websites once received.
On Monday, June 15th, Prudential released a revised PruLife Founders Plus UL (2015). The only revision to the product was the extension of the primary guarantee, no premium or cash value changes occurred. Prudential expanded upon the already a strong primary guarantees of the product. This change results in PruLife Founders Plus UL (2015) being the best primary guarantee in the current assumption UL market, lasting to an average age of 93 for the scenarios Shaw American examines.
When looking at Founders Plus, it is important to note that it also has an indexed component. The primary guarantee is not interest rate sensitive, but is a function of the premium. To realize the full benefit of the long primary guarantee, it is best to allocate to the fixed account or at least buffer the index premium. For further explanation, if you minimally fund the product at the fixed account rate of 4.1%, premiums produce a primary guarantee averaging to age 93 (see page 2 of the Snapshots Exhibit). If you minimally fund it at a higher assumed interest rate, such as 6%, the lower outlay produces lower primary guarantees averaging to age 78 (see page 4 of the Snapshots Exhibit). When compared to the current primary guarantee leader for IUL (Protective’s Indexed Choice UL), the guarantees fall about 10 years shorter, with much less cash and some better/worse premiums.
All primary guarantee data for the current assumption universal life benchmarks were added on Wednesday, June 17th. Note: by the end of the summer, you will see primary guarantees added to the indexed universal life benchmarks.
Click Here for Snapshots Exhibit
On Monday, May 13th, Lincoln released the WealthAdvantage IUL, which replaces LifeReserve IUL Protector. Overall, this new product is significantly more competitive for death benefit protection; however, competitively, it falls somewhere in the middle-of-the-market.
Compared to the replaced product, premiums improved for ages 25 to 70. Most premiums experienced double digit decreases for males and roughly 5% for females. Assuming a lower interest crediting rate further enhances the decrease in premium. Wealth Advantage IUL is best positioned when assuming a 5% interest crediting rate, where it ranks anywhere from 5th to 10th. As expected, and what we’ve come to see across the market, cash accumulation values underperform due to the low-cost premium.
Unexpectedly, maximum distribution solves perform really well. When directly comparing LifeReserve IUL Accumulator by using the same interest rate assumption, WealthAdvantage IUL offers roughly 10% to 15% higher distribution amounts. That said, the cap is 2% lower than the LifeReserve IUL Accumulator 14; so, depending on the approach and intent, the accumulator product may still be the better product. Either way, Wealth Advantage IUL ranks well among its peers, so we also include it in the maximum distribution solve strategies.
WealthAdvantage IUL has two interest bonuses: a persistency bonus of .55% in year 16 and an “Index Bonus”, which encourages allocation to the indexed account. Both bonuses are touted as guaranteed though the index bonus references “a factor” to be applied in its calculation. Even with these bonus features, a key disadvantage is the 10% cap; if the new IUL proposed regulations are approved, the max illustrative rate will most likely fall to roughly 6%.
With John Hancock Vitality, Your Clients Can Earn Points for Healthy Living
John Hancock Vitality Protection UL and John Hancock Term
John Hancock has partnered with the Vitality Group to create a new way for your clients to enjoy life insurance. Through the use of a mobile app, a website and/or a Fitbit, the John Hancock Vitality program tracks your clients’ behavior and awards them points for making healthy choices. As your clients accumulate points, they’ll earn premium savings and rewards (discounts from Hyatt, Royal Caribbean, Whole Foods, REI and more).
Here’s How the John Hancock Vitality Program Works:
- Getting started: Once your client’s policy is issued, they can begin the program by logging onto the member website and completing the online Vitality Health Review. Soon after, they’ll receive a free Fitbit, along with customized information on their lifestyle relative to their age, individual health goals, and tips on how to achieve them.
- Earn points: Your clients can earn John Hancock Vitality Points for the everyday things they do to stay healthy, like exercising, getting annual health screenings, and staying tobacco-free. All they need to do is record their activities using the easy online tools and mobile app. they’ll then earn a Vitality Status (Bronze, Silver, Gold, or Platinum) based on the number of points you accumulate each year.
- Enjoy rewards: Clients will enjoy rewards on their policy’s anniversary and will earn premium savings that reflect the status level the’ve achieved. And those savings can continue year after year if they lead a healthy lifestyle.
John Hancock Vitality is truly revolutionary. Never before has there been a set of life products that make healthy living a game who’s prizes extend well beyond that of monetary value.
To download the flyer or for more information about John Hancock Vitality, Click Here.
John Hancock Vitality is not approved in every state. To check if John Hancock Vitality is approved in your state, Click Here.
This analysis was produced specifically for Shaw American via LifeMark Partners to provide a different perspective on the competitiveness and performance of NLG products.
Goal of Analysis: to focus on potential “real life” situations where a client may be at an advantage or disadvantage as it relates to how a product would perform should premiums be omitted in specified years.
Missed Premium Analysis: Guaranteed universal life (GUL) products are only guaranteed as long as you pay the premium, on time, every time. Producers can strongly encourage their clients to pay premiums on time; however, life events may prevent their clients from being able to pay premiums on time or they may unintentionally (or intentionally) miss a premium.
The Missed Premium Analysis looks at periods of time when the client may miss a premium and what the affect would be on the guaranteed period. We focused on what the guarantee period would look like if a client missed a premium, independent of one another, in year 4, 9 and 13.
For this analysis, we looked at the following:
- Males & Females, Preferred Best, Preferred & Standard Non-Tobacco Risk Classes
- Ages 45-70, every 5 years
- $1,000,000 Level Death Benefit
- Solve for Lifetime Level Premium
Download PDF Here