NAIC Subgroup Launches Another Crackdown on IUL Illustrations – InsuranceNewsNet

NAIC Subgroup Launches Another Crackdown on IUL Illustrations – InsuranceNewsNet

After a five-month hiatus, a group of state regulators met today to consider again tightening Actuarial Guideline 49A to limit life insurance illustrations.

The Indexed Universal Life Illustration Supgroup held a short call to revive its discussion of problematic IUL illustrations. Adopted in 2015, AG 49 failed to align the illustrations of the IUL, so the National Association of Insurance Commissioners adopted the subgroup’s recommendations for AG 49A at the end of 2020.

Critics claimed the AG 49A didn’t go far enough, and regulators promised to keep a close eye on the artwork. But the subgroup met last February when other business was on the agenda, said Fred Anderson of the Minnesota Department of Commerce, chairman of the subgroup.

“Due to the time since our last discussion, and because there are aspects of this issue that are very technical and likely need to be revisited, I am considering a series of perhaps three upcoming calls and meetings,” Anderson said, “before we start making key decisions on how to approach AG 49A.”

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

(a) Attempt a quick fix to the current problem (some companies illustrating uncapped volatility control policies better than S&P 500 capped policies) with a brief review of AG 49-A; it can be discussed with Committee A if it is intended to deal with broader issues with life illustrations;

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

(c) Attempt to revise AG 49A in greater detail to address the current concern and any other potential concerns identified; Where

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

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

“I wonder why you think 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 find a way to play around with the revised AG 49A like they have in the past?”

With the subgroup tackling the issue after a long hiatus, all options should be on the table for consideration, Anderson said. The subgroup hopes to have substantive feedback and progress to report back to the full NAIC at its summer meeting next month, he added.

The background

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

Insurers almost immediately circumvented AG 49 by offering bonuses and IUL multipliers. The IUL Illustration subgroup working on tightening AG 49 was upset in late 2019 when the Life Actuarial Task Force sent out this mandate to members: “designs with multipliers or other enhancements must not illustrate better than designs without a multiplier”.

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

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

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