Unisex

  • 1984 – SOA – Unisex – An Update, rsa84v10n215 – Society of Actuaries – 14p
    • Moderator: DAPHNE D, BARTLETT. Panelists: THOMAS P. BLEAKNEY, BARBARA J. LAUTZENHEISER, ANTHONY T. SPANO. Recorder: MICHAEL F. DAVLIN

IRR – Internal Rate of Return

  • 2021 – AP – A Study of Life Internal Rate of Return, by Roenganan, Sorrawee & Misiran, Masnita & Phewchean, Nattakorn. (2021). A Study of Life Internal Rate of Return. WSEAS TRANSACTIONS ON MATHEMATICS. 20. 122-133 – [link]

Lapse Rate

  • (Senator Cannon) The CHAIRMAN:  So that the first 13 months is the highest?
  • FTC – Mr. LYNCH: The 13-months-lapse rate is typically the highest, and it’s about 20 percent or so.

1979 0710 and 1017 – GOV (Senate) – FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   —  [BonkNote] 

  • I think, overall the data reflect that too many consumers are making a hasty purchase and then just dropping their policies-up to 20 percent in 1976, and double the rate of 1951.
    • Considering the fact that Consumer do not get good cost information, we could hardly say that it was due to the fact that they are discovering lower cost policies.
    • I have seen no one claim that that is the reason for the increase in the termination rate.

—  Lee Richardson, Acting Director, U.S. Office of Consumer Affairs, Department of Health, Education, and Welfare

1979 0710 and 1017 – GOV (Senate) – FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   —  [BonkNote] 

  • The experience of most companies shows that about one half of the policies lapse within ten years from the date of their issue; and probably not more than one-quarter of the policies issued in any year will be in force at the end of twenty years.

—  (p175) – Letter – From E. W. Peet, Secretary of the National Life Insurance Company of the United States To the Committee of the National Insurance Convention, having in charge the rate of mortality and rate of interest for the calculation of premiums, net valuation

1871-1, NAIC Proceedings, (fka National Insurance Convention)  —  [BonkNote]  —  233p

  • 1951 – SOA – Lapse Rates, by Charles F.B. Richardson and John M. Hartwell, Society of Actuaries – 59p
  • 1959 – SOA – Ordinary Insurance and Annuities: Withdrawal Rates, tsa59v11n30ab49 – Society of Actuaries – 5p
    • What has been the trend of lapse rates in recent years? How do lapse rates vary by plan of insurance, by age at issue, by sex, by frequency of premium payment, and by geographical area?
  • (p13) – Michael Pertschuk, Chairman, FTC, Federal Trade Commission. Actually, the vast majority of policyholders do surrender those policies. I think the staff report does expose the figures. But I think that at one point, after 15 years, as I recall, 32 times as many policyholders will have surrendered as terminated through death. So it is a fair measure.
  • Howard Cannon (D-NV), Chairman – Is there a median point that the staff has found? Let’s say an average point at which the policies are surrendered?
  • Michael Pertschuk, Chairman, FTC, Federal Trade Commission. Twenty years-Mike, why don’t you answer.
  • Michael Lynch, Bureau of Economics –  It’s return rates that stabilize after about 20 years. As for lapse rates, they peak in the very first year. The very highest lapse rate is in the first 13 months. The next year typically has a higher lapse rate as well. Thereafter, they continually decline.
  • Howard Cannon (D-NV), Chairman – So that the first 13 months is the highest?
  • Michael Lynch, Bureau of Economics – The 13-months-lapse rate is typically the highest, and it’s about 20 percent or so.

1979 0710 and 1017 – GOV (Senate) – FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   —  [BonkNote]  —   [PDF-592p]

  • 1960 – SOA – First Year Lapse Rate, by Norman F. Buck, tsa60v12n3331 – Society of Actuaries – 57p
    • Since lapses will probably always be with us, it behooves us to try to minimize or postpone them or adjust to them as best we can.
    • To these ends this paper presents results based on a new study and perhaps offers some new ideas on the subject. 
    • It has been almost nine years since C. F. B. Richardson and J. M. Hartwell presented to the Society their excellent paper on “Lapse Rates” (TSA III, 338). – [Bonk: 1951 – SOA – Lapse Rates, by Charles F.B. Richardson and John M. Hartwell, Society of Actuaries – 59p]
      • They included an extensive list up to that date of published works on the subject.
    • Since then the Life Insurance Agency Management Association has published a number of reports on lapses but little has appeared regarding them in the Transactions.
  • Financed Insurance
    • A. What lapse experience has developed on business financed at or near issue through either policy or bank loans?
    • B. Is the amount of such financed business increasing or decreasing and, if so, why? What measures have been taken to limit the amount of such business and what are their merits and demerits?
    • C. To what extent is the exercise of the Fifth Dividend Option in practice being confined to policyholders interested in minimum deposit policies, and why?

1961 – SOA – Individual Life Insurance: Financed Insurance, tsa61v13pt2d49 – Society of Actuaries – 5p

Pricing Assumptions

  • Actually, all of us know it is one thing to build into your pricing assumptions a certain rate of return, but it is quite another thing to find out what rate of return you are actually experiencing.

—  Owen A. Reed

1981 – SOA – Effective Use of Capital, rsa81v7n312, Society of Actuaries – 24p 

—  Richard A. Swift – [Bonk: Aetna-?]

1980 – SOA – Nonparticipating Life Products with Nonguaranteed Premiums (rsa80v6n22), Society of Actuaries – 18p

Options – Life Insurance Policy

  • Michael Lovendusky, ACLI …said the ACLI work group thinks that most confusion for consumers involves complex products like universal life, and not Simple products like term life.
    • He said consumers are mostly confused about options, guarantees and riders.
  • The ACLI work group was considering asking the life insurance and Annuities (A) Committee to narrow the charge to look at only products with options, guarantees and riders, but Ms. Cude said she thinks that it is important to consider how the disclosures for all products could be improved.

2016 0403, NAIC Proceedings – LIIIWG – Life Insurance Illustrations Issues Working Group, Conference Call

  • 1982 – AP – The Life Insurance Policy as an Options Package, by Michael L. Smith, The Journal of Risk and Insurance, Vol. 49, No. 4, (Dec., 1982), pp. 583-601 (19 pages) Published By: American Risk and Insurance Association – JSTOR
  • 1985 – AP – The Whole Life Insurance Policy as an Options Package: An Empirical Investigation, by Michael L. Walden, The Journal of Risk and Insurance, Vol. 52, No. 1 (Mar., 1985), pp. 44-58 (15 pages), Published By: American Risk and Insurance Association – JSTOR
  • The ACLI’s Dolan says the size of the premium depends on the returns on the options in the policy.
    • “The fact is, in a different (and better) economic environment, less in premiums would be paid than originally planned,” he notes.
  • “Owners of this product must be aware of exactly how it works, because, unlike certain other types of life insurance, IULs have a fluctuating component to them.”

2020 0923 – Forbes – Sounding The Alarm On Indexed Universal Life Insurance – [link]

  • Policy Overview
  • Birny Birnbaum (CEJ) – Policy Overview only applies when the consumer is shopping for the policy.
  • Michael Lovendusky, ACLI – Neither model was intended to generate Buying Guides or to relieve consumers of their own individual responsibilities to understand the product that they are spending their hard-earned money to buy after all.
    • And what has happened most recently is that.. And indeed in the most recent development …there are examples of companies attempting to develop completely Dynamic services and policies opportunities for their customers to purchase and to elect a variety of options.
      • And that the options themselves might be changed over time, dynamically, at the will of the purchaser with perhaps his or her financial advisor. 
      • And so, one must I think wonder we’re actually whistling into the winds of change here by attempting to make these summaries and overviews more static and less dynamic.

2018 1109, NAIC – LIIIWG – Life Insurance Illustrations Working Group, Conference Call, [Bonk: Not in NAIC Proceedings]

Premium Payment Options

  • The complications begin with a very simple question:
  • What's the premium for Universal Life?
    • It could be almost anything.
  • Then what's the cash value?
    • That depends on the premium.
  • It is the relationship between the premium and cash value that determines the product characteristics of Universal Life.

--  Ben H. Mitchell, [Bonk: a consulting actuary with Tillinghast in Atlanta - Years-?]

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

  • The agent and prospect have the ability to choose almost any pattern of benefits and premiums.
  • No longer is the sale limited to one of several fixed plans of insurance from a ratebook.

1991-1992 - SOA - Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries  ---  [BonkNote]

  • Universal Life Modeling Example
  • Funding Levels 
    • Universal life plans offer the policyholder great flexibility in their use of the plan -- from a term plan to an investment vehicle.
  • The funding level affects:
    • 1. Universal life commissioners reserve valuation method reserves -- In particular the r factor is the ratio of the actual fund value to the guaranteed maturity fund.
    • Since r is capped at 100%, using a ratio based on the average fund for all policies may not produce the actual reserve.

1994 - SOA - Valuation Actuary Symposium - Session 8 - Life and Deferred Annuity Liability Models - Society of Actuaries - 32p

  • Example 2 - The following table represents the assumptions for this example: back-end load universal life policy; $100,000 specified amount, death benefit option A; insured is a male, age 50, non-smoker; credited rate is 8. 75%; and six premium levels, shown below.
  • Premium Level Description
    • A - IRC Section 7702 Guideline Single Premium ($32,766.82).
    • B - IRC Section 7702 Guideline Level Premium ($3,083.55).
    • C - Target Premium of $1,374 years 1 to 20.
    • D - Target Premium of $1,374 years 1 to 10, $0 years 11 to 20.
    • E - Target Premium of $1,374 years 1 to 5, $0 years 6 to 15, and $1,200 years 16 to 20.
    • F - "ART" premium scenario, i.e. target premium in years 1 and 2 followed by minimum premium to keep policy in force.

1988-2, NAIC Proceedings 

  • Many insurance contracts offer the policyowner options regarding premium payment, benefit patterns, and policy loans.
  • This flexibility means that many different patterns of future cash flow could arise under the contract. (p6)

2002 09 - AAA - Fair Valuation of Insurance Liabilities: Principles and Method, American Academy of Actuaries - 48p

  • Carriers marketed interest rate-sensitive insurance under a host of premium payment options, including the `vanishing premium' plan.

2009 -  LC - Kaldenbach v. Mutual of Omaha - Court of Appeals of California, Fourth District, Division Three. 78 Cal.App.4th 830 (2009) 100 Cal.Rptr.3d 637 - Google Scholar-Kaldenbach-2009

  • Persons seeking life insurance for the Whole of Life have several choices: they may...
    1. buy a one-year renewable term contract and renew it annually, paying the full cost of insurance for each year
    2. buy coverage for the insured's life with a single premium payment, or 
    3. buy coverage for the whole of life under some type of installment arrangement.  (p47)

1984 - Book - Life Insurance: Theory and Practice, Robert I. Mehr

 

Shock

  • McFarquhar, Kenneth A., – “Future Shock” [letter to editor], ACT, 3/90, p. 12

  • The flexibility of Universal Life that initially appealed to the policyholder which allowed him to change premium payments, coverages, etc., will make this annual report of the condition of his “account” an unanticipated shock.

—  Dale W. Hotze, is President of Hotze & Associates Inc., Jacksonville, Florida. 

1983 – SOA – Universal Life (rsa83v9n32), Society of Actuaries – 22p

  • 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: <WishList>
      • “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.”

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

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

  • (p5) – 9. UK – The UK policy underscores that, from time to time, disruptions will occur that prevent an insurer from operating as usual and that insurers need to consider a range of severe but plausible disruption scenarios.
    • This approach acknowledges that blind spots can act as a substantial step towards shocks and disruptions becoming reality.

2022 1013 – IAIS – Draft – Issues Paper on Insurance Sector Operational Resilience – 28p

  • (p1) – Opening Statement of Senator Metzenbaum
    • Today the Subcommittee on Antitrust and Monopoly begins its examination of cost disclosure in life insurance.
    • Life insurance is a tremendous business in this country.
      • Americans carry 140 million ordinary life policies, with nearly $1.3 trillion in coverage.
      • Cash-value life insurance accounts for more than 20 percent of total savings in this country-second only to deposits in savings and loan institutions.
    • The business of life insurance is presently exempt from the Federal antitrust laws under the McCarran-Ferguson Act.
      • It is the only major financial business without Federal regulation.
      • This is a unique situation.
    • It is fair to ask how well has the industry operated under this system.
      • Do consumers of insurance enjoy the benefits of competition?
      • Are consumers able without heroic efforts to find the best coverage for their needs at the lowest cost?
      • And are consumers able to readily understand precisely what kind of coverage they are buying?
    • My staff has conducted a major investigation of these issues.
      • I must say today that I was shocked when I saw its findings. 

1979 0524 – GOV (Senate) – Cost Disclosure in Life Insurance, Howard Metzenbaum (D-OH)  —  [BonkNote]

  • (p37) – Regarding the amount of the emotional distress damages awarded, “[w]hen an appellate court reviews a jury verdict for excessive damages, it can interfere ‘only on the ground that the verdict is so large that, at first blush, it shocks the conscience and suggests passion, prejudice or corruption on the part of the jury.’
    • [Citation.]” (Pearl v. City of Los Angeles (2019) 36 Cal.App.5th 475, 491, quoting Seffert v. Los Angeles Transit Lines (1961) 56 Cal.2d 498, 507.) 

2022 0304 (Date Filed) – LC – Williams v. National Western Life Insurance – Opinion on Transfer, Appeals Court – 52p

  • (p7) – Dinallo:  I decided that I had enough information, and enough belief in the statutory accounting, which we can talk about. Which is really part of the story. That I was going to go out there and make statements about my confidence in the insurance companies of AIG.
    • Because I did believe that on a statutory accounting basis, they had more than enough assets to match their long-term liabilities on a statutory accounting basis. Not mark to market. Which Geithner to this day …
  • YPFS: Can you talk a little bit more about that?
  • Dinallo: When Geithner heard this, I made this joke. I don’t know if I’ve been quoted.
    • I think he thought I was explaining the Mayan calendar to him. It was so alien and so weird.
    • But basically, life insurance companies have long-term liabilities, and they match it with long-term assets that are going to perform by maturing 20 years from now.
    • That’s why so much of the reserves are put towards basically debt, Treasuries, etc., that are highly rated.
      • So that they will almost certainly, hopefully, certainly perform.
      • Which means mature. You’re going to get the coupon along the way, albeit a small yield.
      • The volatility before maturation over the 20 years does not count.
    • This is the biggest debate in insurance right now.
      • Between Europe, the feds, and the United States.
        • That the inter-period where there’s volatility, and this is what I mean by, back with Shelby.
        • They were like, “Oh my god, they’re insolvent.”
        • I’m like, “They’re not insolvent. They may be, on some reporting basis, marginally insolvent.”

Black Box

  • 1996 – SOA – The Actuarial Black Box, by Sam Gutterman, The Actuary, act-1996-vol30-iss01-gutterman-b – Society of Actuaries – 2p 
  • 2009 0305 – WSJ – AIG’s Black Box The fourth rescue is not a charm, by Author-? – [link]
  • What UL does, among other things, is to let the policyowner or maybe the agent pick the point on the line between these two promises— pick the point that best fits the situation that the agent or the policyowner is in.
    • He can have a high premium policy with lots of dividends if experience does remain good
    • or he can pay a very low premium but have a big risk of increasing the premium if experience does not turn out so well.
    • One thing this ability does, it opens up the traditional 3-factor dividend formula, the black box, so that some of the workings are exposed.
      • That is the good side, the opening up of the black box.

— Bruce E. Booker

1988 – SOA – Update on Universal Life Reserves and Non-Forfeiture Values, Society of Actuaries – 36p

  • A. The Black Box of Life Insurance
    • 6. Life insurance contracts are circular, interrelated series of cash flows into, out of, and within a policy.
    • There are innumerable ways to establish these cash flows…

—  Declaration of Robert E. Wilcox  in Opposition to Plaintiff’s Motion for Class Certification – Former Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

2012 0313 – LC – Thao v Midland, United States District Court Eastern District of Wisconsin, 2:09-C-1158-LA, Filed 02/11/11, Page 1 of 44 

Standardized Assumptions

  • 2. Standardized Assumptions
  • Tony Higgins (N.C.) asked the working group to consider projections into the future for only a few years of the non-guaranteed elements, and then projections further into the future of standardized assumptions or guarantees.
  • Bob Wright said this allows a company to show how its policy works without the problem of projections of non-guaranteed elements far into the future.
  • Lester Dunlap (La.) also expressed interest in the idea of standardized assumptions to show how the policy works.
    • He said projections far into the future can border on misrepresentation.

1994-3, NAIC Proc.