I read a very good article by LifeTrends which discussed the industry’s response to AG-49 focusing on the shift in Carrier Trends and Distribution Perspectives.
What is AG-49? It is an Actuarial Guideline adopted by the National Association of Insurance Commissioners for Index Universal Life (IUL) Insurance Illustrations and was designed to help create more uniformity around how life insurance carriers illustrate their index life products. Implemented in 2 phases, the first of which took place on September 1st, 2015, AG-49 Phase I addressed how illustrated rates are calculated. Phase II took effect on March 1, 2016 and instituted additional illustrative stipulations.
The overall guideline provides uniform guidance for policies with index-based interest and:
- provides direction in determining the maximum crediting rate for the illustrated scale and the earned interest rate for the disciplined current scale;
- limits the policy loan leverage shown in the illustration, and;
- requires additional side-by-side illustrations and product disclosures that will further the consumer’s understanding of the product.*
When the illustration restrictions were first instituted, many of our producers thought that IUL products would no longer be competitive. I reminded them that these products were still capable of obtaining higher rates but that the industry was now restricted in illustrating them according to the new guidelines. AG-49 addressed an illustrative issue and now product designs were forced to be shown in a more level environment with these maximum illustrated rates. The products themselves remained mostly unchanged and could possibly perform as well as in the years before the regulations.
The LifeTrends article details the methods carriers are using to adapt to the AG-49 Regulation. Carriers have added key features and benefits that enhance the value of IUL products such as:
- Interest Bonuses – these help boost the returns of the underlying indexes without violating AG-49.
- Index Multipliers – these can be considered index bonuses since they also help improve the return on the crediting rate.
- Spread Death Benefit Options – these help to improve cash accumulation and income solves.
- Alternative Crediting Approaches – these offer options with different cap accounts, uncapped, and par rates.
- Volatility Control Accounts – these replace non-S&P type options in an effort to stabilize interest returns.
Many of our carriers have products that offer one or more of the features I listed above. A couple of them have products that offer all 5 of them. While these features can improve certain scenarios, they can also create more confusion with product design when we are trying to benchmark against other carrier products.
The key to the IUL sale is a thorough understanding of how the product, like AG-49, works and how best to communicate the product “ups and downs” to your clients. I regularly discuss IUL product design and differences with our producers. Let us help you offer your clients the best possible IUL solutions for their business, retirement and estate planning needs.
*AG-49 Regulation, National Association of Insurance Commissioners
By Ed Stark, CLU