AG 49 Changes Pass Key NAIC Committee

By John Hilton

The Life Insurance and Annuities Committee voted unanimously over vociferous objections to adopt language proposed by the American Council of Life Insurers to shore up Actuarial Guideline 49.

Regulators conceded that the changes might not be ideal, but expressed a desire to do something to bring IUL illustrations more in line with actual returns.

"This is something that is going on in the marketplace now," said Doug Ommen, Iowa insurance commissioner. "Our work as regulators, to be frank, is never done. I would support the idea of continuing to work through the life illustration group to address the all of these concerns."

The changes are expected to rein in the illustration of policy crediting rates, said Minnesota regulator Fred Anderson, through a series of changes to the calculation methods. A second big change to add "more conservatism" to the illustration of policy loans, he added.

"A general concept behind these issues is selecting a point on the spectrum of, on one side, allowing innovation and on the opposite side, preventing loopholes," Anderson explained. "If there were 40 people active at (Life and Actuarial Task Force) meetings, and calls on this topic, there are probably 40 different opinions."

The background: AG 49 was adopted by the NAIC in 2015 to rein in IUL illustrations that were showing consumers unrealistic returns. Critics say insurers almost immediately got around the new rules by offering IUL bonuses and multipliers.

The mandate: The IUL Illustration subgroup working on tightening AG 49 was thrown a curveball in October when the Life Actuarial Task Force sent this mandate to members: designs with multipliers or other enhancements should not illustrate better than non-multiplier designs.

The context: IUL sales are a source of strength for insurers. Overall total universal life new premiums increased 31% in the fourth quarter 2019, primarily driven by IUL products.

The next step: The AG 49 revisions will go next to the National Association of Insurance Commissioners' Executive and Plenary Committee. The executive committee generally votes to adopt the work done by lower working groups.

'Controlled And Coordinated'

Birny Birnbaum, executive director of the Center for Economic Justice, called on the committee to reject the proposal and send AG 49 back to the task force with "crystal clear instructions." As he has throughout the process, Birnbaum claimed the process was "controlled and coordinated" by ACLI.

Jillian Froment, director of the Ohio Department of Insurance and chair of the committee, did not permit ACLI to respond to Birnbaum. During past calls, Anderson noted that industry representatives are far from unanimous in agreement on any changes,

Birnbaum challenged committee members to decipher and explain a 55-page IUL illustration from a leading insurer selling the product.

"If you are unable to understand how the core consumer-facing disclosure used in life insurance sales is created, something's terribly wrong," he said.

Birnbaum claimed the changes are permitting insurers to illustrate "riskless loan arbitrage" that does not reflect the vacillations in the market. Likewise, he criticized the limited application of new rules to future illustrations only.

"Why would people who purchased the policy previously have to be stuck with an illustration based on a methodology that regulators have determined is unrealistic and deceptive?" he asked. "It makes no sense."

Industry respondents said the changes meet the charge given to the task force.

"We're supportive of this draft," said Brian Bayerle, senior actuary for ACLI. "It does meet the criteria outlined by regulators, I think very smartly trying to make that very careful balance between addressing the issues at hand without stifling innovation. ... We do think that this will be a positive outcome for consumers."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.