NAIC Indexed Universal Life Illustration Subgroup solicits comment on options to revise Actuarial Guideline 49-A and to open NAIC Life Insurance Illustrations Model Regulation (#582) to revision

On October 12th, the NAIC Life Insurance and Annuity (A) Committee’s Indexed Universal Life (IUL) Illustration (A) Subgroup (IUL Subgroup) exposed for comment four options to amend Actuarial Guideline (AG) 49-A to address a concern raised by state insurance regulators regarding the use of illustrations for indexed universal life insurance (IUL) policies with volatility-controlled indexes that allow for crediting fixed bonuses under the policies. The IUL Subgroup also solicited comment on revising NAIC Life Insurance Illustrations Model Regulation (#582) (Model Regulation 582). 

The four options were proposed to address regulators’ concern that insurer issuers of IUL policies using volatility-controlled indexes have been able to illustrate those policies at higher rates of return than illustrations for IUL policies without volatility-controlled indexes because of the fixed bonus features. The four options are intended to implement a “quick fix” to AG 49-A to address the current concern and are summarized below.

1. Under the first option, a condition would be added to AG 49-A that would limit the maximum amount of leverage that could be illustrated to that of the Benchmark Index Account. The Securian Financial Group, Inc. proposed this option.   
2. The second option would add a limit on indexed illustrated rates of 145% of each indexed account’s hedge budget which limit would be comparable to the 145% net investment earned rate limit on the Benchmark Index Account currently in AG 49-A. A group of six companies, which include Allianz, John Hancock Life Insurance Company, The Lincoln National Life Insurance Company, National Life Group, Pacific Life Insurance Company and Sammons Financial Companies, proposed the second option. In their letter proposing the option, the companies acknowledged that the proposed approach could result in some index accounts illustrating slightly higher than the Benchmark Index Account. However, the companies maintain that the proposed approach would afford regulators and others time to develop a long-term solution.
3. The third option would: (1) remove the lookback methodology in Section 4(A) of AG 49-A that uses historical index return data combined with declared elements to produce a maximum illustrated rate; (2) install the hedge budget in Section 4(C) of AG 49-A as the maximum illustrated rate for any indexed account; and (3) reduce the 45% factor in Section 5(A)(i) of AG 49A to 0%. The third option is based on the recommendation of The Coalition of Concerned Insurance Professionals which clarifies a prior submission from Mr. Bobby Samuelson, Executive Editor, The Life Product Review, and Sheryl J. Moore, President & CEO, Moore Market Intelligence.
4. Under the fourth option, products and strategies with the same hedge budgets would illustrate using the same rates of return. Mr. Michael Yanacheak, Actuarial Administrator, Iowa Insurance Division, proposed the fourth option to help ensure that illustrations remain consistent with their intended purpose which is to demonstrate how policies operate rather than to promote comparisons based on illustrated rates of return. 

The comment period for submitting written comments on the four options ends on November 3rd. Mr. Fred Andersen, Chair of the IUL Subgroup, requested that the authors of the first three options provide an additional explanation of their proposal that uses plain language and numerical examples which may provide credited rates and related values associated with benchmark and non-benchmark indices based on current AG 49-A and AG 49-A with the proposed revision. Once provided, the explanations would be posted on the “Exposure Drafts” tab of the IUL Subgroup webpage.  

During the meeting, the IUL Subgroup also opened for comment Model Regulation 582 which sets forth rules governing life insurance policy illustrations designed to protect consumers and foster consumer education. Among other things, Model Regulation 582 prescribes standards for the use of life insurance policy illustrations and requires certain information and specific disclosures in illustrations. 

The IUL Subgroup requested that commenters identify specific subsections of Model Regulation 582 to consider for revision. Commenters have been asked to identify revision concepts that are actuarial in nature and those that are non-actuarial so work could be allocated appropriately among working groups with actuarial expertise and working groups without actuarial expertise. The IUL Subgroup also requested comment on concepts for draft revisions to address broad IUL illustration issues and whether addressing such issues could be done without revising Model Regulation 582. The comment period for submitting written comments on Model Regulation 582 ends on November 22nd.

We will continue to monitor developments related to potential amendments to AG_49-A and Model Regulation 582. If you have any questions regarding these developments, please contact Steve Roth (202-383-0158), Tom Bisset (202-383-0118), Eric Arnold (202-383-0741) or Maureen Adolf (212-389-5028).