NAIC subgroup tees up another crackdown on IUL illustrations

Life insurance policy illustrations spur concern.

By John Hilton

After a five-month hiatus, a state regulator group met today to again consider tightening Actuarial Guideline 49A to rein in life insurance illustrations.

The Indexed Universal Life Illustration Supgroup held a short call to restart its discussion on the problematic IUL illustrations. Adopted in 2015, AG 49 failed to bring IUL illustrations in line, so the National Association of Insurance Commissioners adopted the subgroup's recommendations for AG 49A late in 2020.

Critics claimed AG 49A didn't go far enough, and regulators promised to keep a close eye on illustrations. But the subgroup met last in February as other business took priority, explained Fred Anderson of the Minnesota Department of Commerce, chairman of the subgroup.

"Because of the length of time since our last discussion, and because there are aspects of this issue which are highly technical and likely need to be revisited, I envision a series of perhaps three upcoming calls and meetings," Anderson said, "before we start making key decisions on the direction of how to address AG 49A."

Anderson presented four options for members to consider and comment on by July 26:

(a) Attempt a quick fix on the current concern (some companies illustrating uncapped volatility-controlled policies better than capped S&P 500 policies) with a brief revision to AG 49-A; it can be discussed with A committee whether there are plans to address any broader issues with life illustrations;

(b) Make no changes to AG 49-A (allow current practices);

(c) Attempt to revise AG 49A more extensively to address the current concern and any other identified potential concerns; or

(d) Apply a hard cap on various IUL illustration metrics.

Birny Birnbaum is executive director of the Center for Economic Justice. He questioned why the subgroup would be considering options that have not worked in the past. Specifically, the latter options (c) and (d) above.

"I'm wondering why you think that pursuing options three and four will bring a different result this time?" Birnbaum asked. "Why don't you think the industry would be able to figure out a way to game the revised AG 49A the way they have in the past?"

With the subgroup tackling the issue after a long hiatus, all options need to be on the table for consideration, Anderson said. The subgroup hopes to have some substantive comments and progress to report to the Life Actuarial Task Force at its summer meeting next month, he added.

The background

Consumer advocates have long had IUL illustrations in their sights. Illustrations showing double-digit returns are often unrealistic and harm retirement savers, critics say.

Insurers almost immediately got around AG 49 by offering IUL bonuses and multipliers. The IUL Illustration subgroup working on tightening AG 49 was thrown a curveball late in 2019 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."

In another key change, the IUL illustration crediting rate was set at 50 basis points higher than the policy loan rate. In AG 49, the crediting rate could be 100 basis points higher that the policy loan rate.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.