On November 3, the National Association of Insurance Commissioners (NAIC) IUL Illustration (A) Subgroup circulated for comment proposed revisions (Proposed Revisions) to recently adopted Actuarial Guideline 49 governing illustrations for indexed universal life (IUL) insurance policies. The Proposed Revisions are meant to address situations where an IUL policy makes available multiple index account options with different account charges (the dual account issue). The Proposed Revisions, including an example of an illustration for an IUL policy with multiple index account options, are available on the NAIC’s website.

Actuarial Guideline 49 was adopted by the NAIC on June 18, 2015, and establishes uniform standards for IUL illustrations. In particular, the Actuarial Guideline establishes a uniform methodology that must be followed in 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. The Actuarial Guideline also limits the maximum spread between the rates of interest that may be credited and charged for policy loans, to ensure that illustrations do not overstate the effect of any interest rate arbitrage that may be achieved through 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 a more detailed examination of the current requirements of Actuarial Guideline 49.

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. Currently, multiple IUL policies are treated differently than multiple index account options in the same IUL policy, and some believe IUL policies with dual or multiple index account options are disadvantaged under Actuarial Guideline 49 as originally adopted in June. The Proposed Revisions, if adopted, would allow IUL illustrations to use different maximum credited rates of interest in illustrations for index account options that take into account the annual account charge and the annual index interest rate cap for the index account option.

The Proposed Revisions would not permit the use of a maximum credited rate of interest in illustrations for an index account option, if the maximum credited rate of interest was determined using a higher annual account charge (and presumably a higher annual index interest rate cap) than was provided for under the index account option being illustrated. If an IUL policy makes available multiple index account options with different account charges, the self-support and lapse-support tests under NAIC Model Regulation No. 582 (Life Insurance Illustration Model Regulation) must be passed for each group of index account options with the same annual account charge as if they were a separate IUL policy.

Commenters have until the close of business on November 30 to provide the NAIC with comments on the Proposed Revisions. However, comments received by the NAIC on or before November 13 may be considered during the Life Actuarial (A) Task Force session at the NAIC’s Fall National Meeting. Comments received after November 13 and before the November 30 deadline will be considered at a later meeting of the IUL Illustration (A) Subgroup.

Sutherland will continue to monitor and report on developments involving Actuarial Guideline 49.