1983-1

  • As you know, revolutionary changes are taking place in the life insurance business.
  • To a large extent, these changes have passed regulators by, and have left the regulators in a position of trying to catch up.

 
--  J. Alan Lauer - Deputy Insurance Commissioner

1983-1, NAIC Proceedings

  • Task Force on Valuation and Nonforfeiture Regulation for New Products, Universal Life and Related Plans of Life Insurance and Annuities
  • A package of material containing preliminary drafts from the American Council of Life Insurance Task Force on Valuation and Non-forfeiture Regulation for New Products.
  • This material relates to the actuarial treatment of universal life plans and related plans. It was submitted by William T. Tozer, of Kentucky Central Life Insurance Company, in Lexington, Kentucky. (See Attachment One-J) - (p452)

1983-1, NAIC Proceedings

lll. UNIVERSAL LIFE AND RELATED PLANS OF LIFE INSURANCE AND ANNUITIES

  • Mr. Montgomery discussed a draft California Bulletin numbered 82-SA.
    • The subject of the bulletin was flexible cash value plans and annuities.
    • The bulletin covered legal issues involving these plans and was intended to amplify Bulletin No. H2-5 which dealt with their actuarial aspects.
  • Mr. Lauer indicated his concern about the soundness of adjustable-cash-value plans with index-related interest guarantees.
    • He said that some of them did not provide sufficient margin for expenses and taxes.
    • He mentioned that Pennsylvania would not approve such plans unless the guarantees were limited to 10 years or unless a one percent margin between the index rate and the guarantee was provided.
  • Mr. William Tozer distributed copies of the most recent draft of the valuation and nonforfeiture guidelines for adjustable cash-value policies being developed by the ACLl.

1983-1, NAIC Proceedings

  • Mr. Becker also asked if any states were requiring that contracts be restricted so that they would satisfy the TEFRA requirements for tax treatment as life insurance.  (p480)  

1983-1, NAIC Proceedings

(p523)  STATEMENT ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURANCE TO THE NAIC (A) COMMITTEE'S LIFE COST DISCLOSURE TASK FORCE - November 29, 1982 

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:
    1. 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.
    2. A special plans section to accommodate the unique features of nontraditional plans such as universal life insurance.
    3. Provision for disclosure of dividend practices to both new and existing policyholders, in accordance with recommendations presented to the NAIC by the Committee on Dividend Principles and Practices of the American Academy of Actuaries.
    4. Provision for disclosure to regulators and policyholders of unusual patterns of premiums and benefits, in accordance with recommendations from the NAIC Advisory Committee on Manipulation.
    5. Provision for policyholders to request additional information relating to future premiums, benefits, and other items affecting policy costs.
    6. Revision of the requirement relating to disclosure of the policy loan interest rate in order to accommodate the
    features of the NAIC Model Policy Loan Interest Rate Bill.
    7. A new Buyer's Guide, with changes designed to take account of recent product developments and to enhance the guide's readability and usefulness.

1983-1, NAIC Proceedings

ATTACHMENT ONE-A

Bracketing [ ] indicates deletion; underlining indicates new material. Proposed Revision of NAIC Life Insurance Solicitation Model Regulation - October 22, 1982

LIFE INSURANCE [SOLICITATION] DISCLOSURE MODEL REGULATION

COMMENT: Since new subsection 5(c) contains requirements applicable to existing policies, the name of the regulation
should be revised to indicate that it applies in more situations than just solicitation. (p524)

1983-1, NAIC Proceedings

  • (536) Flexible Premium and Benefit Policies. For policies, commonly called "universal life insurance policies," which:
  • In addition to all other information required by this regulation, the Policy Summary shall indicate when the policy will expire based on the interest rates and mortality and other charges guaranteed in the policy and the anticipated or assumed annual premiums shown in the Policy Summary.

    COMMENT:

  • The drafters declined to specify the schedules of premiums and benefits to be assumed in calculating relative cost indexes for these policies.
  • They felt that the specific schedule that the applicant desired was a much more appropriate and more useful assumption.
  • These assumptions should, of course, be stated on any
    display.
  • The nonguaranteed Element would be calculated using that schedule and the policys guaranteed values.
    • Note that this section also requires that the Policy Summary must indicate when the policy will expire based on those guarantees and the assumed premium schedule.

(p549) - Fireman's Fund American Life Insurance Company
A LIFE INSURANCE DISCLOSURE SYSTEM FOR THE 1980's
GENERAL PHILOSOPHY

Comparisons

  • It is clear that disclosure of policy cost and benefit information must include actual dollar amounts so prospective purchasers can get an immediate feel of what they are being asked to buy.
  • Frequently, however, the consumer desires more sophisticated information as to the average cost of the benefits over a period of years.
  • This is all the more useful if a prospect wishes to do comparison shopping
  • Ted Becker, representing the Technical Staff Actuarial Group, indicated that his group is still working on the actuarial aspects of universal life as well as other new products.

1983-1, NAIC Proceedings