On August 15th, the NAIC’s Life Actuarial (A) Task Force (LATF) re-exposed for comment four options 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 four options include a brief revision to amend Actuarial Guideline (AG) 49-A with the possibility of opening up NAIC Life Insurance Illustrations Model Regulation (#582) to revision as well as a more extensive revision of AG 49-A. All were previously exposed by LATF’s Index Universal Life Illustration (A) Subgroup (the Subgroup) prior to the NAIC’s National Meeting in August for a shortened nine-day public comment period that ended on July 26, 2022.
The four options were developed in response to regulators’ concern expressed at the July 18th meeting of the Subgroup that insurer issuers of IUL policies using volatility-controlled indexes were able to illustrate those policies at higher rates of return than illustrations for IUL policies without volatility-controlled indexes because of fixed bonus features. In that regard, insurer issuers of IUL policies with volatility-controlled indexes would use cost savings attributable to the lower costs of options associated with hedging strategies for the volatility-controlled indexes to factor in fixed bonuses in IUL policy illustrations. The fixed bonuses allowed the insurers to illustrate their IUL policies using higher rates of return.
The four options originally exposed by the Subgroup and re-exposed by LATF for comment are summarized below.
- An attempt would be made to implement a “quick fix” to address the current concern with a brief revision to AG 49-A. Discussions would also occur with the NAIC’s Life Insurance and Annuities (A) Committee to address whether the Life Insurance Illustrations Model Regulation (#582) should be open for revisions to address any broader issues with life illustrations.
- No changes would be made to AG 49-A which would allow the current practice to continue.
- AG 49-A would be revised more extensively to address the current concern as well as any other identified concerns.
- A “hard cap” would be imposed on various IUL policy illustration metrics.
The comment period for submitting written comments to Scott O’Neal at the NAIC (
soneal@naic.org) on the proposal ends on September 6th. For your reference, we have attached a link to LATF’s exposure of the proposal.
IUL Subgroup Re-Exposure
We will continue monitor developments related to potential amendments to AG 49-A. If you have any questions regarding this development, please contact Steve Roth (202-383-0158), Tom Bisset (202-383-0118), Eric Arnold (202-383-0741) or Maureen Adolf (212-389-5028).
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