NAIC To Reopen IUL Illustrations Guideline

By John Hilton

The National Association of Insurance Commissioners' effort to create Actuarial Guideline 49 was a lengthy process aimed at getting indexed universal life illustrations under control.

Now, a shade more than three years since AG 49 took effect, it seems the NAIC is ready to tackle it again. An IUL illustration subgroup has a 2019 charge to "provide recommendations for modifications to AG 49 to the Life Actuarial (A) Task Force."

The charge was assigned at the NAIC's Fall Meeting in November. A spokesman for the association said the subgroup is busy gathering information and no conference calls or meetings have been scheduled.

Uniform Illustrations The Goal

AG 49 was developed 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.

The meat of AG 49 requires insurers to illustrate using a benchmark rate which averages all 25-year loopback periods since 1949. They will have to assume the S&P 500, with a zero floor, and some form of cap.

There were other components of the regulation, but the goal was to rein in the illustrations, which varied widely and enabled some insurers to show double-digit returns that many considered unrealistic.

Since AG 49 took effect in September 2015, new IUL wrinkles, such as multipliers, have again caused illustrations to tilt unfavorably, regulators say.

“I think there are issues with products in the market that are seeking to circumvent AG 49," said James Regalbuto, deputy superintendent for life insurance at the New York Department of Financial Services, during a fall conference call.

'Not Being Addressed'

The decision to reopen AG 49 is a win for consumer advocate Birny Birnbaum, a ubiquitous presence at all NAIC meetings.

"While recognition of the problems with illustrations and the AG 49 charge are positives, we are concerned that the big problems are not being addressed -- a losing sight of the forest because of the trees problem," said Birnbaum, executive director of the Center for Economic Justice.

"Tweaking AG 49 won't solve some of the overriding problems with the central role of illustrations in sales of investment-type life insurance," he said this week.

Several life insurance sources deferred comment until the subgroup starts its work.

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.