On October 20, the NAIC Life Actuarial (A) Task Force (LATF) of the Life Insurance and Annuities (A) Committee met and approved proposed revisions to Actuarial Guideline 49 (AG 49) for exposure and comment. If adopted, the proposed revisions would apply AG 49’s standards for determining the maximum annual rate of index-based interest that can be used to calculate values in illustrations for indexed universal life (IUL) insurance policies, to all IUL policies, including in-force IUL policies sold prior to September 1, 2015. Currently, the standards apply only to illustrations for IUL policies sold on or after September 1, 2015. The IUL Illustration (A) Subgroup of LATF previously considered and approved the revisions at a meeting on October 12.
At the LATF and IUL Illustration (A) Subgroup meetings, a minority of the members expressed concern that the retroactive application of AG 49’s standards for determining the maximum annual rate of index-based interest used to calculate illustrated values could promote the replacement of IUL policies sold prior to September 1, 2015, with IUL policies sold on or after that date. It was noted that IUL policies sold prior to September 1, 2015, were not designed with AG 49’s standards in mind and would not illustrate well under the new standards. Presumably, new illustrations that complied with the AG 49 standards for those older IUL policies would not compare favorably to illustrations for the newer IUL policies, which newer IUL policies had been designed with AG 49’s standards in mind.
At both meetings, participants expressed concerns that IUL policy owners who purchased their IUL policies prior to September 1, 2015, may be confused if they received new illustrations subject to AG 49’s standards, which could be less favorable than prior illustrations for the same IUL policy. Other participants maintained that the new illustrations would be based on more conservative index interest crediting assumptions and would illustrate values that IUL policy owners were more likely to realize under their policies.
Another more general concern was that imposing AG 49’s standards for determining the maximum annual rate of index-based interest used in illustrations for older in-force IUL policies would require insurers to modify their illustration systems to meet the new standards and would place a significant administrative burden on insurers. However, it was noted that the proposed revisions would only affect the maximum annual rate of index-based interest that can be used to calculate policy values in IUL illustrations and should not require significant changes to existing illustration systems to implement.
After some discussion at the LATF Meeting, the LATF voted to approve the proposed revisions to AG 49 for exposure and comment. During the comment period, the LATF plans to consider, among other things, the possible effect, if any, of the proposed revisions on the NAIC’s Life Insurance and Annuities Replacement Model Regulation (#613) and whether the retroactive application of the proposed revisions to illustrations for older in-force IUL policies raises any legal issues.
The comment period closes on November 9, and the Life Actuarial (A) Task Force is expected to consider comments at its meeting the following day. Sutherland will continue to monitor and report on any further developments involving AG 49.
For more information on the requirements of AG 49, see our prior Legal Alert: NAIC Life Insurance and Annuities (A) Committee Adopts Revisions to Actuarial Guideline 49.