By Arthur D. Postal
WASHINGTON – Differing sectors of the industry have embraced new rules governing the illustrations to be used in selling indexed universal life insurance (IUL).
The compromise is based on the proposal exposed for public comment by the National Association of Insurance Commissioners’ (NAIC) Life Actuarial (A) Task Force (LATF) on Feb. 19, and suggests only minor changes to the exposure draft.
In general, the proposed illustrations include certain requirements of the Life Insurance Model Illustration Regulation. This was a key demand of a coalition of large insurers led by MetLife. The proposed illustrations also include supportability testing, which was supported by the New York Department of Financial Services.
The coalition of insurers led by MetLife also includes Northwestern Mutual and New York Life.
It is expected that the current proposal would result in crediting rates in the 6 to 7 percent range and put limits on loan leveraging.
It is likely that the new rules will start going into effect this year, probably by Sept. 15, under a proposed phase-in plan suggested by the American Council of Life Insurers (ACLI).
The deal was reached on the eve of NAIC’s spring meeting, scheduled for March 27 in Phoenix. The NAIC’s Life Actuarial (A) Task Force (LATF) already has scheduled a two-hour open meeting on the issue for the afternoon of March 26.
Given the compromise has the support of a broad and diverse spectrum of companies, including both IUL and non-IUL writers, it could be acted upon by the full NAIC as early as the spring meeting.
Under the proposed phase-in, provisions dealing with currently payable scale methodology, as well as the so-called “guardrail” that limits the expected yield that can be offered investors in IUL, will go into effect Sept. 15. Provisions detailing information on policy loans and establishing additional standards will go into effect for all new business and in-force life insurance illustrations on policies sold on or after March 1, 2016.
An industry actuary who declined to be named said the core of the deal for the coalition headed by MetLife is the provisions that would go into effect Sept. 15, which are Secs. 4 and 5.
“This is a critical component of the proposal as it represents the main control over the maximum illustrated rate,” the actuary said. More specifically, he said, the Life Insurance Illustrations Model Regulation stipulates that the illustrated scale must be the lesser of the currently payable scale and the disciplined current scale.
The actuary explained that, for the currently payable scale (DCS), the LATF proposal uses a historical look-back approach that generally results in rates in the high 6's (6.83 percent for a 0 percent floor/12 percent cap product).
“While this rate is much higher than I would like, we believe that most companies' illustrated rates will be capped at the disciplined current scale,” the actuary said.
He said that for the DCS provision, the LATF proposal caps the investment return on options at 45 percent.
“While this 45% is clearly much higher than I would like, there are some clear positives here,” he said, “because this guardrail, even when using a 45 percent maximum return, will provide a limit on illustrations.”
The ACLI letter was sent to the LATF on March 16, the day the extended comment period closed.
“No stakeholder will agree with every aspect of a true compromise, but LATF seems to have found a middle ground that can be embraced by a wide majority,” the ACLI letter said. It was signed by John Bruins, ACLI senior actuary.
Bruins said that, “We note that this letter outlines the viewpoint shared by a significant majority of member companies on the points addressed, but there are companies with other viewpoints as well as items we did not address.”
He added that while the Actuarial Guideline is specific to IUL, “we note that it addresses elements of IUL that may be present in other products.
“To the extent such elements are analyzed, we believe it would be appropriate to consider a level playing field between products and companies,” Bruins said.
Bruins noted that more work needs to be done before the illustrations rule is implemented.
He noted that illustration regulations appropriately need to be in broad agreement with other regulations and illustration principles. They also need to be clear so as to be implemented consistently across companies with minimized opportunity for loopholes.
“In this spirit, we hope LATF will work with industry actuaries to develop more specific technical language for the framework,” Bruins said.
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].
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