Life Perspectives, Summer 2019

Q&A—Life Illustrations

MegregianThe Academy’s Life Illustrations Work Group sent two letters to the National Association of Insurance Commissioners (NAIC) in late June providing comments to questions posed by NAIC’s IUL Illustration (A) Subgroup regarding Indexed Universal Life (IUL) products under Actuarial Guideline XLIX (AG 49). The two letters—one sent June 27 covering option Nos. 13–16, and one sent June 28 offering more technical comments—were sent by Donna Megregian, chairperson, on behalf of the work group. Life Perspectives did a Q&A with Megregian about the issue and where it might be trending.

The Life Illustrations Work Group recently sent two comment letters to the NAIC pertaining to its review of AG 49. What’s at issue?

The NAIC is investigating some newer products in the market with a feature that is referred to as a multiplier or enhancement to the credited interest rate. This product feature may be able to illustrate higher credited rates than products without this feature. The NAIC is looking for assistance in understanding the issue and where clarification may be needed. The Life Illustrations Work Group is trying to help with understanding and address concerns that may impact other products and illustration testing.

Earlier this year, the work group released an update to a practice note on the NAIC’s Life Insurance Illustrations Model Regulation and Actuarial Standard of Practice (ASOP) No. 24. Why did it need to be updated? Can you share some of the feedback you’ve received about the practice note?

The work group was asked by the Life Practice Council to address any issues related to tax reform. The practice notes were updated with two questions in order to do that. Overall, the practice notes are a very helpful resource. We often seek feedback and people are quite happy with them, but sometimes don’t know about them. When we have referred someone to the practice notes, they are very grateful. The length of the practice notes goes to show that there are many topics that are helpful to know about.

As the IUL product marketplace continues to change over time, what are some (if any) emerging issues you see coming forward in the future? Will these proposed solutions last or serve as a temporary “Band-Aid”?

Product innovation is a good thing. Innovation can provide useful solutions, but the concern is that innovation may be a means to bypass unclear regulation. The multipliers are a feature that wasn’t originally contemplated by AG 49. As a result, the regulation may need to be updated. Any other innovation that causes illustrated credited rates to be higher than other products will cause concern. Another issue is that some items discussed are not necessarily specific to IUL products. As issues bleed into other products, more than simply revisions to AG 49 will need to be contemplated. A big topic right now is disclosures and readability of an illustration; that’s not specific to IUL. Without knowing how IUL will morph, it is hard to feel that any solution will be a fix without the potential of being punitive.

As the NAIC continue to move forward on this issue, do you think additional guidance should be provided to regulators and actuaries working on IUL product illustrations?

Yes. This is an extremely complicated product with complex technical calculations and results. Regulators don’t deal with illustrations and IUL products every day, so continued assistance with understanding the ramifications of change through to the technical detail of the impact is needed. Actuaries working on IUL products need guidance to ensure compliance with regulations and ASOPs. Actuaries need to sign off on product designs and illustration certifications, so a partnership of understanding should be cultivated.

Variable Annuity Group Seeks Volunteers for New Task Force

The Variable Annuity (VA) Reserves and Capital Work Group (formerly the AG43/C3 Phase II Work Group) is seeking volunteer members for a new Variable Annuity and Capital Practice Note Task Force. The task force would be responsible for reviewing and updating the existing C-3 Phase 2 / AG43 practice note for the revised VA framework. For more information or to volunteer for this project, contact Life Policy Analyst Ian Trepanier at trepanier@actuary.org.

LPC Comments on Assumptions ASOP

A task force of the Life Practice Council submitted a comment letter to the Actuarial Standards Board, outlining its recommendations on the second exposure draft of the proposed actuarial standard of practice (ASOP), Setting Assumptions.

The comments relate to the ASOP’s Section 1.4, multiple parts of Section 3, and state that the “standard does not currently address the concept that different actuaries can reasonably develop different best-interest assumptions within an acceptable range. We believe that guidance on this point would be useful in the standard.”