Guarantees Only - Illustrations

  • The regulators reached a decision to require that illustrations only show guarantees of future performance and actual past performance.

1994-1 NAIC Proc. 

  • A concern I have about illustrating guaranteed only is the potential pressure that can be put on companies to strengthen their guarantees.
    • There was a recent article in the National Underwriter and a quote in it regarding the benefit guarantee associations.
    • The quote said that a few years ago Executive Life had the best guarantees in the business.

--  Francis C. Bernardi

1994 - SOA - Problems and Solutions for Product Illustrations, Society of Actuaries - 28p

[Bonk:  Using "Guarantees Only" for Universal Life Insurance.  Proponents were J Robert Hunter, Texas Commissioner at the time, with CFA after, Consumer Reports, Merrell Lynch]

  • Mr. Foley said that if the technical resource advisors brought a proposal in September to Minneapolis with the i's dotted and the t's crossed, it would be very difficult to proceed with the guarantees-only draft.

1994-3, NAIC Proceedings

  • The majority of the working group felt that guarantees only was not a good idea.

1994-4 NAIC Proc.

  • 1994 - NAIC - ATTACHMENT ONE-C, RULES GOVERNING THE USE OF ILLUSTRATIONS IN CONNECTION WITH THE SALE OF LIFE INSURANCE, Draft: 6/3/94
  • Mr. Wright said the working group was not opposed to showing current scale providing consumers could understand the illustrations, but he had not seen any evidence of an illustration that did that to this point.
  • He invited anyone to come forward with a proposal that would provide clear disclosure, but he indicated it would have to be quite persuasive to influence the working group at this late date.
  • Commissioner Lyons said the working group was required to move quickly and if they could not do that with current scale the members would choose another option.

1994-1, NAIC Proc. 

 

  • Bob Wright (Va.) said the working group met twice in Baltimore and circulated drafts of the Life Insurance Illustrations Model Act and the Rules Governing the use of Illustrations.
    • He said these drafts permit illustrations of guarantees only into the future as well as illustrations of past performance.

1994-2. NAIC Proc

  • 3. Consider Exposure of Drafts Requiring Illustration of Guarantees Only
  • 4. Discussion of  Model  Limited  to  Illustration  of  Guarantees  and  Past Performance

1994-3, NAIC Proceedings

  • Guarantees Only Proceedings 1993 and 1994
    • 1993-4
      • (3) Require an illustration showing the premiums necessary to maintain the original death benefit for all years under guaranteed assumptions.
      • (4) Change the name from "guaranteed values" to "policy values based on guaranteed assumptions."
    • 1994-3
      • 3. Consider Exposure of Drafts Requiring Illustration of Guarantees Only
      • Commissioner Wilcox asked what the working group wanted to do with the drafts that they had prepared that allowed for illustrations only of guarantees into the future and illustration of past performance. Roger Strauss (Iowa) said he would recommend that the drafts be tabled while the working group considered the illustration of nonguaranteed elements. Upon motion duly made seconded, the working group adopted a motion to table the drafts on guarantees only for the present time.
      • Commissioner Wilcox reported that, while the model drafts that allowed illustrations of guarantees only were in virtually final form, the working group had decided to table consideration of them.
      • 6. Guarantees Only - The Consumers Union and Merrill Lynch proposals call for illustrating guarantees only. This requirement would effectively end the sales of universal life, economatic type polices or any other policy that provides significant benefits via policy dividends or other nonguaranteed elements. Companies could not demonstrate how such polices work if they cannot illustrate nonguaranteed elements. Such a requirement would put an end to the life insurance industry as it operates today and force all companies to offer only non-participating policies similar to those offered prior to the rise in interest rates experienced in the 1970s. These policies have proven to be vastly inferior in value to both traditional participating policies and the more modern interest sensitive policies of today.
    • 1994-4 “The majority of the working group felt that guarantees only was not a good idea.”
  • MR. BARKS: So the thing that the industry could take out of this is that the NAIC is moving in the direction of guaranteed only. There is certainly room to change that direction, but if the industry doesn't take some action and do something about it, we may end up in that position.

1994 - SOA - Problems and Solutions for Product Illustrations, Society of Actuaries - 28p

  • 6. Report of the Life Disclosure Working Group
  • Bob Wright (Va.) gave the report of the working group.
    • He said a decision had been made at the meeting on March 5 that the appropriate illustration should show only policy guarantees and past performance compared to a common index.
    • He said he realized this approach was not favored by the technical resource group, but the working group believed it was very unlikely that illustrations could be made understandable using current scale assumptions.

1994-1, NAIC Proceedings

  • Mr. Wright said the working group might develop two alternative models, one with guarantees only, and one with projections of non-guaranteed elements in an understandable format.

1994-2, NAIC Proceedings

  • Mr. Foley said that if the technical resource advisors brought a proposal in September to Minneapolis with the i's dotted and the t's crossed, it would be very difficult to proceed with the guarantees-only draft.

1994-3, NAIC Proceedings

  • b. How to Provide for States That Want to Use Guarantees Only
    • Commissioner Wilcox said that Texas had asked that the model provide a method for states that want to use guarantees only.
    • Commissioner Wilcox said he had talked with Commissioner Robert Hunter (Texas) and he had agreed that the inclusion of drafting notes to identify changes for states that wanted to use only guarantees would be acceptable.
    • Tom Foley (Fla.) asked if this was in any way an endorsement of guarantees only.
      • He said that in his estimation guarantees only was misleading and he did not want to endorse it in any way. 

1994-4, NAIC Proceedings

  • 1994 - NAIC - ATTACHMENT ONE-C - RULES GOVERNING THE USE OF ILLUSTRATIONS IN CONNECTION WITH THE SALE OF LIFE INSURANCE - Draft: 6/3/94
    • The purpose of this regulation is to provide rules for life insurance policy illustrations based upon policy guarantees and past performance.
    • (b) Premium for each year sufficient to produce an endowment at age 100 with totals at year ten (10) and year twenty (20) and age sixty-five (65);
    • (c) Net cash surrender value for each year; and
    • Drafting Note: The working group recognizes that it may be desirable to allow some demonstration of the mechanics of the policy. The working group has asked the technical resources advisors to suggest precisely circumscribed exceptions to Subsection B which would permit such a demonstration.
    • C. Making any representation regarding the past performance of the policy other than the representations contained in the illustration;
    • D. Using a policy illustration which does not comply with the requirements of Section 5 of this rule;
    • E. Providing an applicant with an incomplete policy illustration;
    • F. Representing in any way that contractual premium payments will not be required for each year of the policy in order to maintain the illustrated death benefit; or
    • G. Illustrating any product not identified pursuant to Section 5B.
    • Section 10. Annual Report
    • The insurer shall provide