Supplemental Retirement Income

  • While life insurance is not a retirement strategy, it can help provide the opportunity for supplemental financial support in retirement.  (p23-24)

2018 11-12 – NAIFA / AdvisorToday – Bridging the Gap: An understanding of the potential uses for permanent life insurance can help clients see it as a tool to help fill gaps in their portfolio, By Jason Wellmann – 53p

  • (p13) – Matthew DeSantos – LSW’s Senior Vice-President of Distribution and Business Development (himself a former insurance agent) – DOC 792 – p27
    • Q We were talking yesterday about the ability to use the Provider and Paragon products as supplemental retirement income sources. Do you remember that?
    • A Yes — one of the benefits of life insurance.
    • Q And you testified that LSW refers to the Provider and Paragon products as providing supplemental retirement income normally in those types of marketing pieces; correct?
    • A We do have marketing pieces that refer to the ability to be supplemental retirement income, yes.
  • (p15-16)
    • A It is not the marketing strategy. It is a marketing strategy. That’s a nuance that’s an important one to us.
    • Q So the important nuance is that it is a marketing strategy, not the marketing strategy? That’s your testimony?

—  2014 0423 – DOC 812 – Trial Transcript – Day 10 – Walker v LSW – Life Insurance Company of the Southwest  – 194p  —  [BonkNote]

  • The undersigned companies present these comments in response to the NAIC IUL Illustrations (A) Subcommittee request for comments on the exposed draft of the ACLI recommended changes to AG49.
  • During the call a comment was made that having examples showing the impact of the three different loan arbitrage options would help regulators understand the impacts of each option. Below we have provided a summary table of the work we have done quantifying the impact of each loan option on a hypothetical illustrated scenario for supplemental retirement income.
  • Illustration of Loan Options
    Issue age 55
    $35,000 annual premium for 15 years
    20 years of annual loans starting in policy year 16
    6% Index Interest Credit – Option 1 & 2 (Option 3 only 5.5%) ; 5% Loan Charge

From

Seth Detert, Securian Financial
Pete Rothermel, Nationwide
Jacqueline Fallon, Penn Mutual Life Insurance Co
Seth Harlow, Mutual of Omaha

2020 0612 – Letter – to NAIC Life Actuarial (A) Task Force – Attachment Two-D – (p6-93 – 6-94)

  • 49 – Robert Rikard:
    • Supplemental Retirement Income

2025 0624 – LIFE180 / Chris Kirkpatrick – Interview With IUL Litigation Attorney LIVE  —  [Robert Rikard]  —  [VIDEO-YouTube-01:19:10]   —   [BonkNote]

  • Re: Menu of Options – IUL Illustrations – May 24, 2019, 13 through16
  • The most important number in the marketing of IUL products is one of three values from the current side of the illustration:
    • The maximum “income” or annual distribution (whether withdrawal or loan) over a period of years corresponding to a period of retirement for a supplemental retirement income marketing approach.
    • p6-1136, Attachment Twenty-Four-F, 2019 0702 – Letter – Stephen J. OBrien to NAIC – LATF  – Menu of Options – 4p

—  Stephen J. O’Brien, FSA, MAAA, recently retired product development actuary with 10 years of experience in the pricing and design of IUL products and over 30 years of individual life insurance development.

2019-2, NAIC Proceedings – Life Actuarial (A) Task Force – p6-1136, Attachment Twenty-Four-F

  • p42 – 06 – Variable Universal Life – supplemental retirement income focused
  • p46 – Product Type Descriptions (LIMRA Definitions)
    • Death Benefit Guarantee Focused Products: A UL or VUL product developed specifically for the lifetime death benefit guarantee
      market that features lifetime or near lifetime no-lapse guarantees either through a rider or as part of the base policy
    • Current Assumption or Cash Accumulation Product Types: A UL or VUL product that is primarily marketed for low cost permanent death benefit protection and/or accumulation of cash values for supplemental retirement planning purposes.

2015 – SOA – Flexible Premium Universal Life Products Lapse/Surrender and Premium Persistency Experience – 2009-2013, 2009-13-universal-life-products – Society of Actuaries – 47p – https://www.soa.org/493467/globalassets/assets/files/resources/research-report/2018/2009-13-universal-life-products.pdf

  • This may be the due to the fact that a key market for VUL products is pre-retirees (as a supplemental retirement income vehicle).
  • Presumably some of these policyholders would eventually be accessing their cash values in retirement – either through partials withdrawals or possibly a full surrender.
  • Today, LIMRA sales surveys indicate that approximately 85 percent of new VUL premium is going into the cash-accumulation-focused product designs. 

2007 – SOA – U.S. Individual Life Insurance Persistency Update: A Joint Study Sponsored by LIMRA International and the Society of Actuaries, research-2003-us-life-update – Society of Actuaries – 85p – https://www.soa.org/4937e7/globalassets/assets/files/research/exp-study/research-2003-us-life-update.pdf

Age 100 Problem

  • 2011 – SOA – Life Beyond 100: Rev. Proc. 2010-28 Finalizes the :Age 100 Methodologies” Safe Harbor, by John T. Adney, Craig R. Springfield, Brian G. King and Alison R. Peak, tax-2011-vol7-iss1-adney – Society of Actuaries – 8p
  • p138/140 – Slight modifications in rates were made at ages 96-98 in order to make the mortality rate at age 99 equal to unity and establish age 100 ·as the limiting age of the table.

1942-Supplement, NAIC Proceedings – Reports and Statements on Non-Forfeiture Benefits and Related Matters  —  [BonkNote]

Problem – Legal Cases – Class Actions

  • ⇒  First, there has to be a systemic problem before a class-action cause of action can be brought, and I think that we can all agree that if there is a systemic issue in advice that is being provided, we would want to address that. So this is not about individual rights of action. This is about a systemic problem that affects a class.
    • And second, it is extremely difficult to certify a class, extremely difficult and more so in recent years after certain Supreme Court cases have been decided.  (p37) 

—  Cristina Martin Firvida, AARP, Director, Financial Security and Consumer Affairs 

2017 0713 – GOV (House) – Impact of the DOL Fiduciary Rule on the Capital Markets, Bill Huizenga (R-MI)  —  [BonkNote]

Deceptive Sales Practices

  • …  Joseph M. Belth, who taught insurance for many years at Indiana University and publishes the Insurance Forum, a consumer oriented newsletter. 
    • “This is an industry in which various forms of deceptive practices flourish, and the regulators have not done anything about it.
    • Whether this inaction is because they don’t want to do anything or don’t understand or don’t have the resources I am not prepared to say,” Belth said, but he added, “I think it’s a combination” of those things.”

1994 0313 – The Washington Post – Do Life Insurers Foul the Sales Pitch?, By Albert B. Crenshaw  —  [BonkNote]  —  [link]

  • As Steve discussed, you were illustrating 9% or in the heyday 11%.
    • Granted that was just an illustration, and you may or may not have had cautionary language alerting the policyholder that this isn’t a guarantee. 
    • This is just where we are today.
    • Maybe the guarantee is something like 4%, but these people who perhaps were missold a policy by an aggressive agent thought that that 11% was going to be there forever.
    • It’s now 7%.
    • ⇒  What is it that they lost?

—  Allan Horwich, partner in a law firm located in Chicago

1999 – SOA – The Role of the Actuary in Litigation Support, Society of Actuaries – 16p

1970s

  • 1973 / 1974 – GOV (Senate) – The Life Insurance Industry, Senator Hart (D-MI) – 4 Parts  —  [BonkNote]
    • 1973 0223 – Part 3 of 4 – [PDF- 641p-GooglePlay]
      • (p2074) – “Deceptive Sales Practices in the Life Insurance Business,” by Joseph Belth (draft) 
  • 1974 – AP – Deceptive Sales Practices in the Life Insurance Business, by Joseph Belth – 22p

1990s

  • 1994 0227 – The Salina Journal – Abusive Life Insurance Business Needs Reform, by Jane Bryant Quinn  –  [link-newspapers.com] 
  • 1994 0528 and 0929 – GOV (House) – Deceptive Practices in the Sale of Life Insurance, Cardiss Collins (D-IL)  —  [BonkNote]
  • 1995 1123 – The Record (Hackensack, New Jersey) – Connecticut Probe Finds Prudential Misled Policyholders – [link-newspapers.com]
  • 1998 – MDL-1061 – LC – Prudential Insurance Co. of America Sales Practices Litigation  —  [BonkNote]
  • 1998 0918 – Washington Post – Pentagon Bars Life Insurance Firm Because of ‘Deceptive‘ Practices, (Academy Life Insurance Co.), by Bradley Graham – [link]  —  Military
  • 1999 0416 – NYT – Metro Business; Life Insurance Refunds, By The Associated Press, [MetLife, Richard Blumenthal, deceptive sales practices, churning]  –  [link]
  • 1999 0709 – WSJ – Prudential Fined $20 Million by NASD Over Sales of Variable Life Insurance, By Bridget O’Brian – [link]
    • Pruco Securities Inc., a unit of Prudential Insurance Co. of America , was censured and fined $20 million by the National Association of Securities Dealers for deceptive sales of variable life insurance, one of the largest fines ever by the NASD.
    • The hefty penalty is the latest blow to Prudential in its struggle to put a huge and long-running insurance-sales scandal behind it.
    • So far, the imbroglio, which involves allegations of misleading practices for the 12 years through 1995, has forced the company to take a $2.6 billion charge to pay policyholders eligible for remediation under terms of a federal class-action lawsuit.
    • Also, the Newark, N.J., financial-services company has paid $65 million in penalties to state insurance regulators.
  • 1999 1217 – Reading Eagle / Reading Times – Deceptive Sales Practices Continue in Life Insurance, by Herb Denenberg – [link-GoogleNews]

2000s

  • 2007 01 – Criminological Highlights, Volume 8, Number 4 – 12p
    • This issue of Criminological Highlights addresses the following questions:
    • 3. Would you buy life insurance after reading this paper?
      • (p6) – Deceptive sales practices in the life insurance business have become part of ‘normal business’: sales agents are taught by companies how to be deceptive and not get caught.
      • 2006 – AP (Criminology) – The Institutionalization of Deceptive Sales in Life Insurance, by Richard V. Ericson and Aaron Doyle, British Journal of Criminology, 46, 993-1010 – jstor.org/stable/23639474
  • 2020 0923 – Forbes – Sounding The Alarm On Indexed Universal Life Insurance  — [BonkNote]  —  [link]
    • But critics say indexed universal life insurance is being sold dishonestly. “They are complex products sold with false promises and deceptive marketing,” says Birny Birnbaum, executive director of the nonprofit Center for Economic Justice. “Stay away from them.”
    •  Steven Roth, president of Wealth Management International, an insurance analyst and litigation consultant.
      • “Policy values in IULs are depressed for many years due to high up-front charges and high surrender fees,” says Roth, adding that, “These typically last for more than 10 years after the policy was taken out.” Roth was recently part of a class action suit against Prudential Insurance Co. involving overbilling and improperly lapsing universal life insurance policies. He is working on another one against Pacific Life over deceptive sales practices concerning the earnings potential of indexed universal life insurance policies.
    • 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.”

1994 0227 – The Salina Journal – Abusive Life Insurance Business Needs Reform, by Jane Bryant Quinn  –  [link-newspapers.com] 

Underfunded Life Insurance Policies

  • “under funded” “life insurance”
  • Impactful Ideas to Promote Ethics Awareness
  • Small Group Case Study Discussions
    • Use Real (Sanitized) Cases From Your Own Company
    • Supplement With Industry Challenges (e.g. Underfunded Universal Life Insurance Policies and What Steps Company Compliance & Ethics Professionals Can Take to Help Their Companies Address this Issue)

2019 1025 – ACLI / CEFLI – Meeting the Challenge of Promoting Ethics, Kelly Ireland, Vice President – Compliance & Ethics, Compliance & Ethics Forum for Life Insurers – 29p

  • 2008 – Letter (Example) Conseco – Change of COI Letter Example to Client Conseco -Ltr_to_PHs_102708 – 8p 

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

  • 1994 - SOA - Problems and Solutions for Product Illustrations, rsa94v20n229 - Society of Actuaries  ---  [BonkNote]  ---  28p
  • BRADLEY E. BARKS (Chief Product Actuary for LIfeUSA Insurance Company: The subject we are going to talk about is life insurance and disclosure regulation, which the NAIC is working on currently. 
  • (p10 / 578)
  • MR. BARKS: This issue and the other comments about reality are both related to consumer expectations.
    • The vanishing premium is also related to policyholder expectations.
    • I would like to ask the panel, if we are trying to make sure that the illustration has a high likelihood of meeting policyholder expectations?
    • Is this a goal of this process?
  • Robert E. Wilcox - Chairman of the Life Disclosure Working Group (NAIC):
    • I think it is.
    • If we are going to have a group of consumers of our products who are satisfied with what they get, we have to meet their expectations.
    • Obviously, there are two adjustment points whereby that can be accomplished.
      • One is that you can change the outcome to match the expectations.
      • The other is to change the expectation to match the outcome.
  • (p16 / 584) 
  • MR. BARKS: I want to go back a little bit and give George a chance to respond to or add to our list of goals and objectives 
  • George Coleman (Prudential / NAIC Technical Resources Group - TRG)
    • What I do not like is "high likelihood of meeting policyholders' expectations."
      • I think when we are talking about that, we are really talking about moving to guarantees and with all the problems attendant thereon.
      • The 44% of the values and benefits paid by Prudential in 1993 were nonguaranteed elements.
      • That is an important aspect of our sales, if we are trying to meet expectations, then I think we have a major problem.
      • If we are selling on the basis that this is going to fulfill your expectations without the disclaimers that are necessary, then we have some major problems.

Problem – Lapse

  • Commissioner Huff was appointed as Chairman of a new task force on life insurance policy lapsation.
  • The task force was charged with the responsibility of identifying specific problems involved and seeking solutions to the problem of life insurance policy lapsation.

1976-4, NAIC Proceedings

⇒ Commissioner Huff = William H. Huff III – Iowa Insurance Commissioner – 1971-1976

Misleading

  • Why is this flimflammery allowed to continue?
  • Where are the laws to prevent companies from misleading people?  

—  Senator Howard Metzenbaum (D-OH)

1993 0525 – GOV (Senate) – When Will Policyholders Be Given The Truth About Life Insurance?, Senator Howard Metzenbaum (D-OH)  —  [BonkNote] 

  • 1957 – Book – Northwestern Mutual Life: A Century of Trusteeship by Harold F. Williamson and Orange A. Smalley
  • It goes on: “Even the more modest claims for this type of policy proved to be misleading because of two trends…
    • one was the increasing life expectancy in the United States,
    • the other the continued fall in the rate of interest ….
  • [O]ver longer intervals survivors ultimately collected much smaller dividends than they had been led to expect.” (op. cit.)
  • This sounds eerily like the situation today.

—  William C. Koenig

1991 – SOA – Disclosure Systems: Can an Ideal Method be Found?, Society of Actuaries – 22p

  • While it is possible to make some sort of cost comparison in these cases on the basis of cost in a given year per $1,000 of net protection, such comparisons apparently can be misleading in some cases when the original policy is an endowment or retirement income policy or a limited payment policy.

—  Walter Young

1969 – SOA – Life Net Cost Comparisons, Society of Actuaries – 34p

  • Mr. DeAngelo responded that the New Jersey Unfair Trade Practices Act on false advertising is only one paragraph long and the department has been criticized for not telling the industry in its regulations what is false and misleading, for example.
    • No other regulators spoke in support of the ACLI suggestion, so it will not be included in the next draft.
  • Mr. DeAngelo said there had been a suggestion that Section 2A(1)(c) be revised.
    • He said if materials for agents are misleading or incomplete, then agents may in turn mislead the public.
    • He asked if regulators were interested in deleting the language that says “which is designed to be used or is used to induce the public… .”
  • Mr. Hanson said he would like to see all training materials included and Mr. Burch said he was also in favor of deleting the language.
  • Mr. DeAngelo said he did not recall seeing incorrect or misleading training materials, so this is somewhat a theoretical question.
  • Mr. Hanson responded that he had seen misleading materials in market conduct examinations.
  • Diana Marchesi (Transamerica) said this language would then be broad enough to include material designed to inspire agents to sell more for the company.
    • All of the information in the regulation would then need to be included in that inspirational brochure.
  • Mr. DeAngelo asked if there is a middle ground, such as requiring the regulation to apply to material that describes to the producer the features, advantages or disadvantages of an insurance product.
    • The regulators agreed that was an appropriate compromise.
  • What the regulators really want to say is that the agent training materials should not be misleading or incomplete.
  • Mr. Burch said that he has been convinced that the requirement for agent training materials should be deleted and the rest of the regulators agreed.

1999-4, NAIC Proc. – Unfair Trade Practices 

  • 359 – The statements made in the 2007 Form 10-K press release of February 28 2008 and conference call of February 29 2008 were materially false and misleading in at least the following respects.
  • As described above Defendants knew that AIG faced significant risk of being subject to tens of billions of dollars of additional collateral calls arising from it CDS portfolio Defendants also knew that the overwhelming portion of the cash collateral received from borrowers under AIGs securities lending program was invested in RMBS and other asset backed securities that such securities were becoming increasing illiquid and that demands by borrowers for the return of their cash collateral would severely strain AIGs liquidity
  • As result the following statements among others touting AIGs financial strength and capital position were materially false and misleading:
    1. with diverse portfolio of global businesses strong capital base and outstanding talent AIG has the ability to absorb the current volatility Sullivan February 28 press release
    2. AIG has the financial strength to meet our performance goals and build long-term shareholder value Sullivan February 28 press release
    3. AIG is well positioned to grow shareholder value despite the current turbulent environment Sullivan February 29 investor call and
    4. AIG has strong capital base and we are not raising additional capital Sullivan February 29 investor call Indeed less than three months later AIG would announce equity offerings of $12.5 billion which would have severe impact on its earnings per share among other metrics.  (p156-157)

2012 – LC – Pacific Life Funds and Pacific Select Fund vs AIG – 12-CV-6071 – Complaint for Violations of The Federal Securities Laws – 241p

Problem – Reinsurance

  • On reinsurance, in 1984 we passed a new act on reinsurance in terms of what has got to be put up from the unauthorized reinsurers to insure that there are some funds available, in case those insurers disappear.
    • We have taken action on reinsurance.  
    • We have taken additional action because we see it as a problem that is starting to emerge, and a problem we would like to get a handle on. 

—  John Washburn – Illinois Insurance Commissioner – 11/1/1983 – 9/1/1989

1986 0618 – NAIC / GOV – Edward Muhl (MD) and John Washburn (IL) – Insurance company solvency [draft] – 53p

Problem – Insurance Regulators

  • 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