NAIC Panel Close to Passing Universal Index Life Insurance Illustration Guidelines
PHOENIX //BestWire// - A National Association of Insurance Commissioners panel is poised to approve a draft document to create a standard format for marketing indexed universal life insurance products.
The NAIC's life actuarial task force has been working on a format for universal life illustrations that would limit existing differences among insurers, particularly the interest calculation insurers use to arrive at the rates on policies (Best's News Service, Sept. 22, 2014). The draft document underwent another round of changes March 26 during the NAIC's Spring National Meeting in Phoenix.
Indexed universal life is a permanent life insurance policy allowing policyholders to tie accumulation values to a stock market index. These policies often have a minimum guaranteed fixed interest rate component along with the indexed account option.
Insurers currently can use different calculations to reach a rate to display on illustrations. But the new document would require companies to calculate an average annual credited rate for the benchmarked indexed account. They would do so by using a series of 40 25-year rolling averages that would begin in 1950.
John Bruins, vice president and senior actuary at the American Council of Life Insurers, told Best's News Service the current document would result in illustrations showing rates of about 7%. His group supports the new document, despite it differing in some areas from an initial ACLI plan. Bruins said one of the major differences is a capped benchmark index account that would be based on changes in the S&P 500 Index value over a one-year period.
The EquiTrust Life Insurance Co. said the use of a 65-year period in which to begin calculating rolling averages for the benchmarked index is "an arbitrary assignment of a recent historical period. We believe there are compelling, credible and defensible reasons for using a shorter period" and recommended 1984 as a start date.
Comments submitted by an actuarial consultant said the document would require insurers to illustrate the minimum, the 20th percentile, the 80th percentile and the maximum average annual credited rates — estimated to be 5.35%, 5.74%, 6.27% and 6.96%, respectively.
Bruins said the capped benchmark index and the rate calculation method currently in the document would help prevent possible gaming by insurers.
The new document also contains a second cap on earned interest. The document states if an insurer engages in a hedging program for index-based interest, the assumed earned interest rate cannot exceed 145% of the annual net investment earnings rate of general account assets allocated to support the policy.
The panel agreed to expose the document for comment through April 14. Task force Chairman Mike Boerner scheduled an April 16 conference call that could result in a vote to approve the document.
Changes approved would ultimately be included in the NAIC's Life Insurance Illustrations Model Regulation. The NAIC's rules predate the IUL products, which are among the insurance industry's top sellers.
Among those skeptical of current IUL marketing efforts is the New York Department of Financial Services. The department announced last fall it would investigate IUL insurance marketing because of concerns that "products be presented to prospective purchasers in an appropriate manner with respect to the product's future performance" (Best's News Service, Sept. 22, 2014).
(By Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com)