Investment Risk

In the ACLl’s view, there is no investment risk to the consumer since the product typically carries a guarantee which includes principal plus four percent and since the interest to be earned beyond the guaranteed amount does not involve the kind of risk that is associated with securities.

— Gary Hughes, ACLI

1982-1, NAIC Proceedings

One corporate reason is that several big life insurance companies got a nasty shock in the late 1970s and early 1980s when they found their bond portfolio down by about 30-40 percent and a negative cash flow.
They’re unhappy with their investment risk and happy to pass it on to the policyholder.

— Michael R. Tuohy

1985 – SOA – Variable Universal Life Insurance, Society of Actuaries – 22p

In addition to transferring investment risk to policyholders, universal life insurance also requires the policyholder to assume the risk of shifts in mortality rates.

1985 – AP – Universal / Variable Life Insurance: Policy Purchase Decisions, Stephen P. D’Arcy and Keun Chang Lee – 58p

Another area of concern relating to solvency is investments by insurers.
Recently, some states have expressed concern over investment by life insurance companies in high yield /high risk obligations, referred to as “junk bonds.”

— John Washburn , Director of Insurance for the State of Illinois and Vice President of the NAIC

1987 – GOV – Developments In State Insurance Regulation- [PDF-511p