1980s – ACLI – Snippets

1980s - ACLI - Snippets

1. Heard report by ACLI concerning life insurance cash flow and liquidity problems caused by recent financial instability.
The report noted:
- (a) High interest rates caused cash outflow.
- (b) Forward investment commitments have been a source of cash drain while anticipated cash inflows have not materialized.
- (c) Few companies have been forced to realize capital losses.
- (d) Life insurance claims have been met.
- (e) ACLI is developing mechanisms to deal with similar problems. (p88)

1980-2, NAIC Proceedings

1. Liquidity Problems
Mr. Richard Minck, representing the American Council of Life Insurers (ACLI), was requested to provide a general review, from the ACLI's perspective, of the concern over life insurance industry cash flow and liquidity problems.
Mr. Minck noted several factors:
- (1) In the pension area, funds which normally would accrue to insurers were moved to short term high interest rate money markets, thereby reducing cash flow. This has been coupled with withdrawals of funds from insurers with guaranteed interest contracts. [Bonk: GICs]
  - Similar problems have occurred with respect to deferred annuities.
- (2) In the policy loan area, high interest rates caused heavy borrowing for reinvestment.
  - However, the pressure on policy loans is levelling off due to reductions in interest rates and reduced pressure from banks due to credit restrictions.
- (3) Confronted with declining cash flow, life insurance companies investment forward commitments have virtually ceased.
  - Nevertheless, some which were made last year are still coming due.
  - However, by Labor Day, the pressure on life insurers from this source should be pretty well over.
- Traditionally, when an insurer's cash flow was inadequate, resort would be made to lines of credit.
  - However, this time new lines were drying up and some existing lines were not honored.
  - Mr. Minck said that this problem is also easing.
- (4) With respect to the bond market, Mr. Minck said that not many life companies were forced to sell bonds at depressed prices.
  - Instead, they were able to resort to the sale of stocks or draw upon cash from affiliates.
- (5) To date, cash flow problems have been limited to the area of meeting forward commitments.
  - Claim payments have not been a problem.

[ACLI] - Re: Policy Loan Developments of 15 Life Insurance Companies
- The purpose of the meeting was to discuss concerns about the liquidity conditions and the possibilities of future adverse developments.
- The company people wanted to be sure that Mr. Volcker was fully aware of the potentials of the situation and to arrange a liaison between his staff and the staff of the Council and this aim was accomplished.
- In the meantime, we have begun to explore the means by which the resources of the business might be applied to alleviate any temporary extreme liquidity problems that might arise for a particular member company.
- [Bonk: Paul Volcker = Chairman of the Federal Reserve]

1980-2, NAIC Proceedings

Historically, companies were reluctant to replace life insurance because they might be in violation of the "twisting" laws.
- Times have changed.
In 1969, the National Association of Insurance commissioners developed the 1970 Model Life Insurance Replacement Regulation.
- This removed most of the "twisting" fears.

-- William T. Tozer, ACLI

1981 - SOA - Individual Life Insurance Cost Disclosure Issues, Society of Actuaries - 22p

Another area I would like to discuss is the ACLI tax package.

1981 - SOA - Universal Life, Society of Actuaries - 16p

The [ACLI's] Council's Subcommittee on Cost Comparisons has proposed that cost disclosure requirements for universal life plans be generally similar to those for traditional life insurance plans as provided by the NAIC Model Life Insurance Solicitation Regulation.
In addition, the Subcommittee is recommending disclosure for universal life plans in accordance with the "non-guaranteed cost element" concept endorsed by the Council as a modification to the model regulation.
- The only special requirement recommended for universal life plans is that the Policy Summary indicate when the plan will terminate based on guaranteed assumptions.
- No post-sale disclosure requirements were deemed appropriate at this time.

-- Leonard E. Odell, ACLI

1981 - SOA - Universal Life (RSA81V7N412), Moderator: Samuel H. Turner, Society of Actuaries - 16p

For example, the survey of 15 insurers conducted by the Council shows that during the first 4 months of 1981, gross loans made averaged slightly more than $600 million per month, somewhat less than the same period in 1980 but substantially higher than the same period in 1979.
- These periodic spurts of borrowing have caused serious problems for life insurers, their policyholders and the economy.
- Enactment of the model bill by the states should alleviate these problems in the future.

1981-2, NAIC Proceedings

We have a committee within the ACLI that has been looking into the whole liquidity question, and on the basis of those discussions, I believe there is much more liquidity in the industry today.
If I recall correctly, the biggest surprise came about 15 years ago, when the first discussions were held with the Federal Reserve because of the first policy loan crunch.
That was the real shock, because it had never happened before in the industry.
This is the fourth wave now, and I believe the industry is used to it and is getting its portfolios in order to meet these demands when they come.

-- John Booth, ACLI

1981 - SOA - The Life Insurance Business--The View of Consumerists, Society of Actuaries (rsa81v7n38) - Daniel F. Case - Moderator - 18p

1958 - LC - Knox v. Anderson --- [BonkNote]
- 297 F2d 702 (CA-9 Hawaii 1961, cert. denied 270 U.S. 915 (1962) is frequently cited as the landmark case in the field of agent liability.
- The action brought in Knox was principally founded in the tort of deceit due to the agent's grossly improper solicitation and sale of an unsuitable life insurance product to the plaintiff.

1982-1, NAIC Proceedings - Statement of the American Council Of Life Insurance Before the NASAA NAIC Joint Regulatory Insurance - 10p

... the policy summary should include a statement on the point at which the policy will expire based on the policy guarantees and the anticipated premiums shown in summary.
- ...Universal Life should be treated as a life insurance plan with a nonguaranteed cost element for cost disclosure purposes.

-- 1981 1215 - Report - ACLI to NAIC - Paper on Cost Disclosure for Universal Life, by the Special Task Force of the ACLI Cost Disclosure Subcommittee to NAIC Task Force on Life Insurance Cost Disclosure - 4p

1982-1, NAIC Proceedings

...life insurance contracts such as universal life..... same risk-shifting attributes as their more traditional predecessors.
They merely afford purchasers greater flexibility in designing their contracts so as to meet their individual needs."

-- 1981 0831 - Letter - ACLI to NAIC - Statement of the American Council of Life Insurance to the NASAA NAIC Joint Regulatory Insurance Products Study Committee - 10p

1982-1, NAIC Proceedings

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

Since universal life insurance was then being marketed only on a very limited basis, the council task force's proposals did not address this product.
- The council has now developed a recommendation for universal life insurance, which we would like to present for your consideration.
The essence of the proposal is that universal life insurance be treated for cost disclosure purposes as a life insurance plan with a nonguaranteed cost element.
Thus, the policy summary would show for the prescribed policy years the anticipated premiums and, both on the guaranteed and currently illustrated bases, the death benefits, cash surrender values, and endowment amounts, if any.
- The life insurance cost indexes would be calculated on the currently illustrated basis, using the anticipated premiums, and would be required to be shown along with corresponding nonguaranteed elements.

An additional item of information that is recommended to be required in the policy summary is the point at which the policy will expire based on the policy guarantees and the anticipated premiums shown in the summary.

1982-1, NAIC Proceedings

1. The product commonly referred to as "universal life insurance" has aroused considerable attention and is being marketed to an increasing extent.
- Under a universal life insurance policy, the insured has considerable flexibility with respect to the amount and timing of premium payments.
- It is possible for the insured to skip premium payments and still have the policy continue in force, even until the point at which the policy expires or matures.
- Under these circumstances, when is a policy to be considered as having lapsed for the purpose of the proposed disclosure system? How about the situation where a premium is paid, but at a substantially lower level than the policyholder had been paying?
- Should this be considered a partial lapse and, if so, how should the amount lapsed be measured?
2. Another recent product is "adjustable life insurance."
- The policyholder must pay premiums on the specified due dates but can request changes in the amount of the premium, the amount of insurance, or the plan of insurance.
- The policy thus can be changed from a permanent insurance plan to a term plan, and vice versa.
How are such policies to be handled under the advisory committee's proposed system, which calls for a separation of the experience between permanent and term insurance? - (524-526)

-- 1982 0608 - Letter - ACLI to NAIC- Statement on Behalf of the American Council of Life Insurance to the NAIC (A) Committee's Manipulation, Lapsation, Dividend Practices and Annuity Disclosure Task Force - Attachment Four - (p524-526)

1982-2, NAIC Proceedings - NAIC (A) Committee's Manipulation, Lapsation, Dividend Practices and Annuity Disclosure Task Force

The following are among the principal features incorporated in the revised draft:
- The introduction of the concept of a nonguaranteed element to measure the extent to which policy costs can be affected by premiums, benefits, or other items that are subject to change by the company without the consent of the policyholder.
- A special plans section to accommodate the unique features of nontraditional plans such as universal life insurance.

1982-2, NAIC Proc. - A new exposure draft of a revised model regulation has been prepared by the staff of the American Council of Life Insurance [ACLI]

4. Another recent marketplace phenomenon has been a sharp increase in replacement activity, with indications that perhaps half of all lapses involve replacement situations.
- The revised NAIC Life Insurance Replacement Model Regulation adopted in 1978 is based on a recognition that a replacement is not necessarily disadvantageous to a policyholder, i.e., some replacements are well-justified and definitely in the consumer's interest.

1982-2, NAIC Proceedings - NAIC (A) Committee's Manipulation, Lapsation, Dividend Practices and Annuity Disclosure Task Force

Other policies may have special features which allow flexibility as to premiums and coverage.
- Some let you choose the death benefit you want and the premium amount you can pay.
- The kind of insurance and coverage period are determined by these choices.
One kind of flexible premium policy, often called Universal Life, lets you vary your premium payments every year, and even skip a payment if you wish.
- The premiums you pay less expense charges) go into a policy account that earns interest, and charges for the insurance are deducted from the account.
- Here, insurance continues as long as there is enough money in the account to pay the insurance charges.

-- 1982 1129 - Letter - ACLI to NAIC - Statement on Behalf of the American Council of Life Insurance To The NAIC (A) Committee's Life Cost Disclosure Task Force - p523-? - 27p

1983-1, NAIC Proceedings

⇒ [Bonk: Also Found in NAIC Life Insurance Buyer's Guide editions until the 1996 Proc. 3rd Quarter 9, 40, 907, 918, 931-936 (amended Buyer’s Guide)]

At your June meeting, your task force received a draft of a proposed revision of the NAIC Life Insurance Solicitation Model Regulation.
- This proposal would incorporate the following new features into the model regulation:
2. A special plans section to accommodate the unique features of nontraditional plans such as universal life insurance.

-- 1982 1129 - Letter - ACLI to NAIC - Statement on Behalf of the American Council of Life Insurance To The NAIC (A) Committee's Life Cost Disclosure Task Force - p523-? - 27p

1983-1, NAIC Proceedings

⇒ [Bonk: Also Found in NAIC Life Insurance Buyer's Guide editions until the 1996 Proc. 3rd Quarter 9, 40, 907, 918, 931-936 (amended Buyer’s Guide)]

In short, Petitioner states, the guideline annual premium equals the annual premium necessary to keep the policy in force for the life of the insured.
[Bonk: Petitioner = ACLI]

1983 1130 - Federal Register, Vol.48 No. 231 - 234p

I'm now going to talk about cost disclosure, which is one of the subjects that I have been following closely at the ACLI.

-- Tony Spano, ACLI

1984 - SOA - NAIC Update, Society of Actuaries - 24p

Absent a settlement between the several parties, that is, the rehabilitators, the management of Baldwin-United, and the various creditors, very substantial amounts of litigation seem likely.

-- Dick (Richard) Minck, Executive Vice-President of the American Council of Life (ACLI) Insurance and the newly elected Secretary of the Society of Actuaries

1984 - SOA - Changes in the Canadian Regulatory Framework for Life Insurance, Society of Actuaries - 36p

Apparently, the complexity of the organizations and their criss-crossing ownership permitted the officers of Baldwin to persuade the Federal Reserve to approve a situation in which a holding company owned both banks and other financial institutions, including insurance companies.

-- Dick (Richard) Minck, Executive Vice-President of the American Council of Life (ACLI) Insurance and the newly elected Secretary of the Society of Actuaries

1984 - SOA - Changes in the Canadian Regulatory Framework for Life Insurance, Society of Actuaries - 36p

''It seems to be growing now,'' said Daniel F. Case, an actuary for the American Council of Life Insurance, the trade association for the nation's life insurers, about this interest-sensitive product.
- ''In my mind, it's a cross between a universal life policy and an adjustable-premium policy.''
Universal Life
Adjustable-premium (or indeterminate-premium)
The original excess-interest whole life policies,,
A second classification of excess-interest whole life soon developed, however, and it has become the bigger seller.
- Often referred to as the vanishing-premium version, it provides for the possibility that premiums will be ended after not too many years.
Such a situation, sometimes described as a paid-up policy, can occur because the premiums in the early years are set at a high enough level that the funds placed in an insured's account - augmented by the interest paid to the policyholder - are assumed to be sufficient to pay for future premiums.
- And if investment results and other factors hold steady, premiums may soon be reduced to zero.
As Mr. Case of the life insurance council noted, ''Premiums that have vanished may reappear later, if things start getting back down to modest interest yields.''

1984 0616 - NYT - Your Money: Insurers Offer Hybrid Policy, By Leonard Sloane - [link]

II. REGULATORS' PROBLEMS
- The development of new products and the entry into new lines of activities by financial organizations have presented regulators with serious new problems.
- These problems have shown up in the area of protections afforded buyers of these products and most especially in the area of regulating the operations of companies with a view to solvency.

-- Dick (Richard) Minck, (Executive Vice-President of the American Council of Life Insurance (ACLI) and the newly elected Secretary of the Society of Actuaries)

1984 - SOA - Changes in the Canadian Regulatory Framework for Life Insurance, Society of Actuaries - 36p

Ed FEIGHAN (D-OH): Well, if insurance is viewed as an investment by the majority of Americans, that's the result of its portrayal over several decades by the industry.
Robert HUNSTAD, ACLI, Minnesota Mutual: I can't respond to that. (p301)

1984 0411, 0503, 0510, 0628, 0913 - GOV (House) - Competition in the Insurance Industry - [PDF-755p-GooglePlay]

⇒ Robert Hunstand - senior vice president and actuary, Minnesota Mutual Life Insurance Co., on behalf of the American Council of Life Insurance (ACLI)

At the 1986 Annual Meeting of the American Council of Life Insurance ACLI Chairman John Pearson stated:
- Our products must do what we say they do.
- Our companies must fulfill their promises.
- All the words in the world- the best government relations, the best public relations-will not be enough without performance. (p2)

1987 01 - SOA - Non-Guaranteed Promises: A New Standard of Practice, by William T. Tozer, Actuarial Update, Society of Actuaries - 8p

In the January 1987 issue of Insurance Forum Joseph Belth makes the statement :
- In my opinion, life insurance sales illustrations are out of control.
- Furthermore, I am not aware of any significant attempts by any insurance organization or by the actuarial profession to deal with the problem.

1987 01 - SOA - Non-Guaranteed Promises: A New Standard of Practice, by William T. Tozer, The Actuarial Update, Society of Actuaries - 8p

Tony Spano, ACLI: Our proposal involves a method known as the "range" approach" approach.
- ...provide illustrations based on different assumptions.
- This would serve to demonstrate to the consumer the effect on future benefits of changes in assumptions.
- Also, illustrations based on other than the company's current scale can provide particularly useful and timely information if a change in experience is anticipated.

-- 1988 0613 - Letter - ACLI to NAIC - A Statement on Behalf of the American Council of Life Insurance to the NAIC Market Conduct Surveillance (EX3) Task Force, Subgroup on Life Advertising Issues - 3p

1988-2, NAIC Proceedings -

The most obvious is if we fail policyholder expectations, we may have policyholder suits.

-- Larry R. Robinson, Chairman of the ACLI Subcommittee on Cost Comparisons

1988 - SOA - Actuarial Opinion on Non-Guaranteed Elements, Society of Actuaries - 12p

What do we have?
In some ways, it is an industry victory; nonguaranteed elements are still allowed in illustrations.
- I recall that at one point they were really talking about eliminating all nonguaranteed elements from illustrations.
I am on this panel principally as Chairman of the ACLI Subcommittee on Cost Comparisons.
- Much of our work has dealt with the issue of illustrating Nonguaranteed Elements.
- As a backdrop, I want to quote from a January 1988 Financial Planning article. The article is entitled "Future Shock" by Harry Lew with the sub-heading:
  - "What will happen when a generation of insurance buyers begins comparing unrealistic illustrations with the actual performance of their policies?
  - Industry leaders would prefer not to find out."
- The article goes on to say that "... veterans of the insurance industry are quietly expressing concern about the way illustrations are being used in today's market."
Often the numbers on the computer printout contain nonguaranteed projections on how the policy will perform in future years and tend to convince the client he is getting a better deal than he really is.
Some have gone so far as to call even well-designed illustrations the industry's "great lie."
Agents who continue to give much credence to nonguaranteed projections may be setting themselves up for a fall as policies fail to live up to the expectations of a whole generation of insurance customers.

-- Larry R. Robinson, Chairman of the ACLI Subcommittee on Cost Comparisons

1988 - SOA - Actuarial Opinion on Non-Guaranteed Elements, Society of Actuaries - 12p

Lonnie Milton Graul: Don't you think part of the response to the interrogatories might be the choice of the lesser of two evils?
- An honest response might be, "The rates we are currently illustrating are not supportable because we illustrate on the portfolio rate and the portfolio rate is higher than the new money rate.
  - If everything else stays the same, the credited rate is going to go down."
  - If you gave that answer to the question and were in a major company and your competitor or a consumer advocate gets a hold of that, they can say, "Look, they are telling you a lie."
- What is the alternative? --- Give an incomplete answer, an incoherent answer?
  - This seems to be the norm.
- An insurance regulator might think the answer was inadequate but that is three or four years from now when they do an examination.
Larry R. Robinson, ACLI: You have pointed out a very real danger.

1988 - SOA - Actuarial Opinion on Non-Guaranteed Elements, Society of Actuaries - 12p