On July 27, 2016, the Life Insurance and Annuities (A) Committee adopted revisions to Actuarial Guideline 49 (AG 49) to address situations where indexed universal life (IUL) insurance policies make available multiple index account options with different account charges (the dual account issue). The IUL Illustration (A) Subgroup of the Life Actuarial (A) Task Force previously approved the revisions for exposure and comment on February 24, 2016. Refer to Sutherland’s March 2, 2016, Legal Alert entitled “NAIC IUL Illustration (A) Subgroup Approves Proposed Revisions to Actuarial Guideline 49 for Exposure and Comment” for an examination of the revisions.
AG 49 was adopted by the NAIC on June 18, 2015, and establishes uniform standards for IUL illustrations. In particular, AG 49 establishes a uniform methodology for determining the maximum annual rate of index-based interest that can be used to calculate policy values in IUL illustrations based on the historical performance of the S&P 500 Index. AG 49 also limits the maximum spread between the rates of interest that may be credited and charged for policy loans and requires disclosure of additional information intended to make consumers more aware of the potential variability of interest rates that may be credited under IUL policies. Refer to Sutherland’s June 10, 2015, Legal Alert entitled “NAIC Close to Adopting Guideline for IUL Illustrations” for an examination of the requirements of AG 49 as originally adopted.
It is not uncommon for an IUL policy to offer multiple index account options, one or more with low annual account charges and low annual index interest rate caps, and other index account options with higher annual account charges and higher annual index interest rate caps. However, multiple index account options in the same IUL policy have been treated differently from multiple IUL policies each with an index option and some believe IUL policies with dual or multiple index account options had been disadvantaged under AG 49 as originally adopted. Newly revised AG 49 allows IUL illustrations to use a different maximum credited rate of interest for each index account option that takes into account charges and the annual index interest rate cap for that particular option. Refer to Sutherland’s November 9, 2015, Legal Alert entitled “NAIC IUL Illustration Subgroup Proposes Revisions to Actuarial Guideline 49” for an examination of the dual account issue.
The revisions clarify the maximum rate(s) of index-based interest permitted in illustrations for IUL policies that offer multiple index account options. For example, the revisions clarify the account charges that must be taken into consideration when determining the maximum credited rate of index-based interest for each Benchmark Index Account to include charges deducted from contract values, premiums and amounts transferred to an index account option.
In a related matter, the New York Department of Financial Services (the DFS) has for more than two years been considering amendments to its Regulation 74 entitled “Life Insurance and Annuity Cost Disclosure and Sales Illustrations,” which amendments would address, among other things, illustrations for IUL policies. As of the date of this Legal Alert, the proposed amendments to Regulation 74 have not been made available to the public and the DFS has not set a date for their publication.
The NAIC’s Executive Plenary is expected to approve newly Revised AG 49 at its August meeting. Sutherland will continue to monitor and report on any further developments involving AG 49 and the proposed amendments to Regulation 74.