NCOIL – National Council of Insurance Legislators

  • Sen. Hackett (R-OH) –  stated that one of the problems that the life insurance industry has been experiencing for several years is that when universal life was sold years ago interest rates were so much higher and these policies are really going to blow up much earlier.  (p165)

2020 12 – NCOIL – 30 Day Materials and Tentative General Schedule, NCOIL Annual Meeting, December 9 – 12, 2020 – 220p 

  • State insurance regulation was not a factor in the economic downturn and should not be swept into any proposed financial services overhaul.

2009 0402 – Letter – NCOIL to GOV (Senators Dodd, Frank, Shelby, Bachus) – 2p

  • 2017 0306 – InsuranceJournal – At NCOIL, State Lawmakers Look to Claw Back Power from NAIC, By Ian Adams – [link]
    • 2018 – LR – Is U.S. Insurance Regulation Unconstitutional?, by Daniel Schwarcz – 67p
  • 2003 1105 – GOV (House) – Reforming Insurance Regulation: Making the Marketplace More Competitive for Consumers, Richard H. Baker (R-LA) – [PDF-200p, VIDEO-?] 
    • NCOIL – Neil Breslin, Senator, New York State, on behalf of the National Conference of Insurance Legislator
  • 2007 1030 – GOV (House) – Additional Perspectives on the Need for Insurance Regulatory Reform, Paul Kanjorski (D-PA)  —  [BonkNote] 
    • NCOIL – Craig Eiland, Texas House of Representatives, on behalf of the National Conference of Insurance Legislators
  • 2008 0610 – GOV (House) – H.R. 5840, The Insurance Information Act of 2008, Paul Kanjorski (D-PA)  —  [BonkNote]
    • (p14) – NCOIL – Brian P. Kennedy, Representative, Rhode Island House of Representatives, and President, National Conference of Insurance Legislators
  • Tony Higgins (N.C.) referred the group to a resolution of the National Conference of Insurance Legislators (NCOIL) urging state insurance departments to become aware of disclosure and abuse issues in life insurance solicitation (Attachment Six-A2).
  • 1993-3, NAIC Proceedings – 1992 0724 – Letter – NCOIL to State Governors – Re: Full Disclosure/No Misleading Advertising in the Sale of Life Insurance, Attachment Six-A2 – [link-pic]
    • To encourage full disclosure and combat misleading advertising in the sale of life insurance, the Executive Committee of NCOIL urges that state insurance departments:
      • (1) Require full disclosure of withdrawal charges and actual pure net interest when interest rates are used to advertise and sell life company products;
      • (2) Stay alert and keep ongoing records to review insurance companies and agents who have complaints filed against them regarding life insurance replacement; 
      • (3) Review their existing statutes and regulations and to the extent possible, make companies and agents aware of those existing statutes and regulations with regard to false or misleading advertising in the sale of life insurance policies.

1993-3, NAIC Proceedings 

  • 2008 1120 – NCOIL – Life Insurance & Financial Planning Committee Minutes – National Conference of Insurance Legislators – 6p
    • PRINCIPLES-BASED RESERVING
    • Commissioner Voss said the NAIC Life, Health, and Actuarial Task Force (LHATF) was nearing completion of a new Standard Valuation Law.
      • She said certain types of new life insurance products, like level premium term life insurance, universal life insurance with secondary guarantees, and variable annuities with secondary guarantees were often under-reserved, while other life insurance products were required to maintain redundant reserves.
      • Adoption of a new principles-based system of reserve standards would, she said, allow companies to maintain reserves that represented their actual risk.
      • Commissioner Voss said the NAIC hoped to complete the Standards Valuation Law by year-end.
    • Dave Sandberg with the American Academy of Actuaries (AAA) … said companies in Australia, the United Kingdom, and Canada were subject to principles-based reserving requirements, and had remained solvent despite the far-reaching impacts of a global credit crisis.
      • He said the current reserving requirements in the United States hid the real risks. 

More complex products sold to individual consumers (e.g., universal life policies) tend to generate more market conduct problems than simple products (e.g., term life insurance).

2003 0701 – Report – For NCOIL – The Path to Reform – The Evolution of Market Conduct Surveillance Regulation, by PricewaterhouseCoopers and Georgia State University – 117p

  • (p6) – I do note that on reinsurance issues, there does need to be a national debate on what we do with reinsurance issues.
  • We have been discussing this along with NAIC, and there are very technical, detailed things that have to happen on a worldwide basis, not just what we do.

—  Craig Eiland, Texas House of Representatives, on behalf of the National Conference of Insurance Legislators (NCOIL)

2007 1030 – GOV (House) – Additional Perspectives on the Need for Insurance Regulatory Reform, Paul Kanjorski (D-PA)  —  [BonkNote]

Speed to Market

  • NAIC – Speed to Market Task Force
  • GOV
  • 2005-1, NAIC Proceedings – (2005 0315, p100) Individual Modified Single Premium Variable Life Policy Standards
    • Individual Flexible Premium Variable Adjustable Life Policy Standards
  • 2005-2, NAIC Proc. – (2005 0613)
    • SPEED-TO-MARKET FILING TOOL SUGGESTION BOX
  • Speed to market is the ability to bring products to the marketplace in a timely and efficient manner, but without sacrificing consumer protections.
  • This is unquestionably one of the most important matters confronting our business.

—  WILLIAM B. FISHER, VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL, MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURERS <ACLI>

2001 – GOV – INSURANCE PRODUCT APPROVAL: THE NEED FOR MODERNIZATION

  • [PDF-208p, No Video]
  • House – Financial Services – SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT SPONSORED ENTERPRISES 

Aetna v. Wisconsin Insurance Commissioner

  • 1979-1981 – LC – Aetna v. Wisconsin Insurance Commissioner  —  [BonkNote]
  • 1981 – SOA – Individual Life Insurance Cost Disclosure Issues, Society of Actuaries – 22p
  • Ed. Note: Several Society members testified in a recent lawsuit in which 14 stock life companies and two field men’s groups sought to prevent Wisconsin’s Insurance Commissioner from requiring that buyers be given
    • (1) a preliminary policy summary that displays the policy’s Surrender Cost Index (SCI) but not its Net Payment Cost Index (NPCI) nor its Equivalent Level Annual Dividend (ELAD) , and
    • (2) a buyer’s guide that describes these figures in a manner objectionable to these plaintiffs.
    • We invited those actuaries to send along concise statements. The letter (P) or (D) denotes a speaker for the Plaintiffs or for the Defendant. The Plaintiffs won the case; the Defendant plans to appeal.

1980 – SOA – The Wisconsin Imbroglio, act-1980-vol14-iss05-wisconsin – Society of Actuaries – 3p

  • What has happened in the past 2 years-even more than 2 years-in the life insurance industry has been very dramatic.
  • The products have changed considerably, mainly because of high inflation.
    • There are new products now that offer money market rates on the cash value portion of the so-called traditional whole life policy and that blows apart the old disclosure system.
    • The old indices do not accommodate that kind of product. In fact, that even came up in the trial 2 years ago vis-a-vis my proposed system.
  • The Aetna, one of the plaintiffs in the trial, argued that the current cost disclosure indices would not be suitable for their Econo-master policy which has variable aspects to it.
    • So I think that the NAIC is going to have to relook at the whole issue of life cost disclosure.
    • It is an issue that will not go away.
    • ⇒  As long as the internal benefits of a policy are not reflected in the premium, people need help in measuring those benefits.
    • ⇒  That is, in a nutshell, what cost disclosure systems have tried to do. (p10-11)

—  Susan Mitchell, Wisconsin Commissioner of Insurance

1981 0921 – GOV (House) – Insurance Agent Commission Deregulation, John LaFalce (D-NY) – [PDF-109p-GooglePlay, VIDEO-?]

  • 1979 – LC – Aetna Life Ins. Co. v. Wisconsin Insurance Commissioner, Harold Wilde – Court of Appeals
    • District Four, February 28, 1979, No. 79-001, 90 Wis. 2d 861 | 279 N.W.2d 509
  • 1981 – LC – Aetna v. Wisconsin Insurance Commissioner, Susan Mitchell – Supreme Court
    • Argued January 7, 1981 – Decided March 31, 1981
    • 303 N.W.2d 639 (Wis. 1981)
    • 1981 – ACLI – Amicus Curiae Brief – LC – Aetna v. Wisconsin Insurance Commissioner, Susan Mitchell – 28p
      • (p10) – Failure to disclose the magnitude of these important nonguaranteed elements of a life insurance policy can clearly mislead the purchaser.
      • (p10) – The trial court found that Rule INS. 2 .14 (4) (a) requiring delivery to consumers of a Summary and a Buyer’s Guide, compelled delivery of false and misleading information to the consumer, contrary to §628. 34(1) (a), Wis Stats. The decision of the trial court should be affirmed. 
      • (p11) – Moreover, competition is further restricted by any system which discourages innovation, l. .e., the design of new products for the marketplace. 
    • 1981 – NAIC – Amicus Curiae Brief – LC – Aetna v. – Wisconsin Insurance Commissioner, Susan Mitchell – 
    • law.justia.com/cases/wisconsin/supreme-court/1981/80-518-9.html
    •  – GoogleScholar – [link]
      • On December 15, 1978, shortly before the January 1, 1979 effective date of Commissioner Wilde’s rule, Aetna Life Insurance Company (Aetna) and others,[4] the respondents, commenced an action pursuant to sec. 227.05 (1), Stats….
    • 1981 0331 – LC – Aetna v. Wisconsin Insurance Commissioner, Susan Mitchell – Supreme Court – No. 80518 – Opinion – casetext.com/case/aetna-life-ins-co-v-mitchell
  • 1981 – LC – Aetna Life Ins. Co. v. Mitchell – law.justia.com/cases/wisconsin/supreme-court/1981/80-518-9.html
    • [BT notes april 2016 part 2]
    • 101 Wis. 2d 90
    • 303 N.W.2d 639
    • For the challenge is foreseeable that were the Commissioner to base her rule on the grounds the majority suggests, she would mislead the consumer by predicating the rule on a consumer fantasy rather than on the facts of life insurance.
    • It is for the Commissioner, not this court, to choose which *141 experts to believe and to predict consumer needs.
    • The Commissioner’s rule is not patently unreasonable. It is not void of rational basis. It is not the result of an unconsidered, willful or irrational choice. The Commissioner has given a rational explanation for her decision; her decision is supported by expert opinion.
    • The area of life insurance cost disclosure is a difficult one, and across the country regulatory agencies and insurance companies are groping for answers.
    • At this time there is no magical formula that will assure that the consumer understands the cost of the policy.
    • The Commissioner and the industry agree that something needs to be done to improve disclosure of cost to the consumer. I would give the rules a chance in the marketplace. The case was originally assigned to Judge Sachtjen. The record does not disclose why the case was transferred to Reserve Judge Jackman after remand.
    • [4] Sec. 601.01(3) (b), (c), (g) and (j), Stats. 1977, set forth the purposes of the insurance code as follows:
      • “(b) To ensure that policyholders, claimants and insurers are treated fairly and equitably;
      • “(g) To maintain freedom of contract and freedom of enterprise so far as consistent with the other purposes of the law;
    • To keep the public informed on insurance matters;
    • 22] Since 1972 the rules have required disclosure of the Surrender Cost Index to the consumer after the policy is purchased
    • 24] “. . . The question of whether a label, otherwise not misleading, provides adequate information is not therefore a matter of statutory construction
    • The reviewing court must affirm the agency if it assures itself that a rational basis exists for the agency determination, and that the agency considered all relevant factors in arriving at its choice. . . . The Court’s role here is of course not simply pro forma, it must be satisfied that the agency has articulated reasons and identified important facts in support of its judgment. . . . But a reviewing judge need not agree that the administrator’s choice is optimal or even preferable; so long as the decision is rational and has support in the record, the court may not substitute its own judgment for that of the agency.
    • For one insurance company’s advertising approach to cost disclosure, see The Bankers Life, How Can I Make a Reliable Cost Comparison Between Competitive Policies, Changing Times 43, 44 (June 1980). It refers to only two indices.
Aetna v Mitchell NP 2
  • The Buyer’s Guide and the Policy Summary required to be delivered prior to sale emphasized the necessity of comparing the policies with the Surrender Cost Index (SCI) as a means of comparative shopping to aid in determining the lowest cost policy.

1981 0331 – LC – Aetna v Mitchell, Wisconsin Insurance Commissioner – Supreme Court – No. 80518 – Opinion – casetext.com/case/aetna-life-ins-co-v-mitchell

  • Any administrative rule requiring dissemination of cost disclosure information that is misleading due to incompleteness is beyond the scope of the insurance commissioner’s authority in that it violates sub. (1) (a). Aetna Life Insurance Co. v. Mitchell, 101 Wis. 2d 90, 303 N.W.2d 639 (1981).

docs.legis.wisconsin.gov/statutes/statutes/628/III/345/4/b

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

Q: How Can Universal Life be Classified? Permanent / Whole / Cash Value / Term / Other

Why is Universal Life called Permanent or Whole Life?

Maybe Universal Life Shouldn’t be Called Permanent or Whole Life

How Else Could Universal Life Be Explained?

NAIC

  • Drafting Note:  Although highly flexible, Universal Life insurance is generally considered a permanent life insurance plan.
    • Most companies encourage a premium level which will provide lifetime insurance protection.
    • Every Universal Life insurance policy of which the drafters are aware has a “net level premium” that could be computed which would guarantee permanent protection.
    • As a result, it is expected that most Universal Life insurance policies will be sold as permanent plans.

NAIC – Universal Life Model Regulation

Consumer Representative / Academic

  • Comment [BJC2]: Permanent insurance is a term used only by the industry – not by consumer educators.
  • We would prefer – Life insurance comes in two basic types: Term and whole life (also referred to as permanent insurance).

—  Brenda Cude

No Date, Assuming approximately 11/15/2017 – NAIC – LIBG – Life Insurance Buyer’s Guide (A) Working Group Conference Call

ACTUARIAL

  • Adjustable Policy
    • The old distinction between term and permanent is usually not appropriate for an adjustable life policy.
    • ⇒  In every sense an adjustable life policy should be a permanent policy regardless of what the current static plan may be.
    • Its flexibility means that it can be the only policy a person ever owns even if the initial version corresponds to a ten-year term plan.
    • It seems better to look at it in terms of what it can adjust to in the future rather than to concentrate on whatever plan today’s premium/face amount relationship requires for defining values and dividends. 
    • The emphasis should be on the basic permanent result that flows from the adjustability.
    • It is necessary that those with experience in individual life insurance adjust their thinking to adjustable life.
    • Traditional attitudes and approaches are not always appropriate.  (p282)

—  Charles E. Rohm 

1976 – SOA – Toward Adjustable Individual Life Products, Society of Actuaries, Walter L. Chapin – 50p

  • The Model Regulation specifies that the expense allowance shall be that for level premium, level death benefit endowment insurance at the maturity date.
    • The rationale for choosing a “whole life” expense allowance of this sort was thought out carefully.
    • It was felt that most of these plans were sold as a substitute for traditional forms of permanent insurance.
    • In addition, the expenses incurred in putting one of these policies on the books is comparable to plans where the whole life expense allowance is permitted.
    • Any expense allowance smaller than that for whole life would leave universal life plans at an unfair disadvantage in comparison to traditional plans of insurance.

—  Shane Chalke

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

  • Universal Life
    • Unlike adjustable life, where a current plan is defined, but is subject to change, a universal life policy at any time has only a “minimum” and a “maximum’ plan….
    • The adoption in 1983 of the Model Regulation for Universal Life provided recognition that these policies could be configured as whole life policies. (p622)
  • (p612-) – Attachment One-B, To: Members of The Society of Actuaries, Date: October 1988 – Re: (SOA) Task Force On Nonforfeiture Principles Interim Report-Tentative Conclusions

1989-1, NAIC Proceedings

INDUSTRY

  • This approach treats flexible life as a continuous level premium, level death benefit whole life policy.
  • This is the type of program that most people think about when life insurance is discussed.
  • Second, this approach emphasizes that the payments made by the applicant are the premiums –not the expense loads or monthly mortality charges. 

— William T. Tozer

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

ACADEMIC

  • Persons seeking life insurance for their entire lives have several choices:  they may
    • (1) buy a one-year renewable term contract and renew it annually, paying the full insurance cost for each year.  (p37)

1987 – Textbook – Life Insurance: Theory and Practice, Mehr and Gustavson

GOVERNMENT

  • There are two main types of life insurance policies:
    • Whole (or universal) life insurance policies are considered permanent.
    • As long as you pay the premium, the policy is in effect.  (p32)

Consumer Action Handbook, published by USAGov, part of the U.S. General Services Administration’s (GSA) Office of Citizen Services and Innovative Technologies – 152p 

  • Life insurance is available in two basic types:
    1. term and
    2. permanent (which includes whole life, universal life, variable life, and variable universal life). 205
  • Permanent (cash value) life insurance pays the beneficiary whenever the insured dies, as long as premiums have been paid. (p38)

2016 11 – FIO (Federal Insurance Office) – Report on Protection of Insurance Consumers and Access to Insurance – 58p

Life insurance is available in two basic types: term and permanent (which includes whole life, universal life, variable life, and variable universal life). 205  – ACLI 

  • Universal life insurance generally refers to a whole life policy with flexible premiums, adjustable death protection, and a cash value accumulated at current rates of interest.
  • Universal life insurance offers both insurance protection (in effect, term insurance) and savings, i.e., the ability to accumulate a cash value in the policy by making contributions in excess of the level required to provide the term insurance death benefit.   (p2)

1998 0921 – GOV (Senate) – Report of The Committee on Governmental Affairs United States Senate to Accompany H.R. 2675 – To Require That The Office Of Personnel Management Submit Proposed Legislation Under Which Group Universal Life Insurance and Group Variable Universal Life Insurance Would Be Available Under Chapter 87 of Title 5, United States Code, and for Other Purposes – 19p – congress.gov/committee-report/105th-congress/senate-report/337/1

1997-1998 – S. Rept. 105-337 – Federal Employees Life Insurance Improvement Act – 105th Congress 

LAWSUITS

  • Universal life is considered “permanent insurance” in the industry.
  • For example, a governmental website for seniors, maintained by the Social Security Administration, has the following definition
    • “Permanent Insurance — including whole, ordinary, universal, adjustable and variable life — is  protection that can be kept in force for as long as you live”8

2003 – LC – Rebuttal Report of Mr. Affleck by Donna R Claire re: William L. Fay, et. al. v. Aetna Life Insurance and Annuity Company et. al.

  • 21. Aetna does not dispute this paragraph, but adds that Plaintiffs never asked what the term “permanent insurance” means.

2003 – LC – Fay v Aetna – Document 65 – Defendant Aetna Life Insurance And Annuity Company’s Response To Plaintiffs’ Separate Statement of Additional Undisputed Material Facts – Filed 06/02/03 Page 6 of 32 – Case 1:01-cv-10846-RGS

IRS (Internal Revenue Service)

  • The 818(c) election is another issue that is being looked at by the Service. In the Hutton ruling, the Service specifically took a caveat indicating that they were saying nothing with respect to this issue.
    • One question that was discussed briefly was what was the plan of insurance?
    • How do you know whether you have a permanent policy that qualifies for $21 per thousand, or a term policy that qualifies for $5, or perhaps some that qualifies for nothing.
    • That is an unanswered question.”

—  William B. Harman, Jr.

1981 – SOA – Universal Life, (RSA81V7N412), Moderator: Samuel H. Turner, Ben H. Mitchell, Society of Actuaries – 16p
 1982 GOV TEFRA Act of 1982 818 disguised term

NAIC

  • Universal Life Insurance Model Regulation (#585): 
    • The letter “r” is equal to one, unless the policy is a flexible premium policy (Universal Life) and the policy value is less than the guaranteed maturity fund, in which case “r” is the ratio of the policy value to the guaranteed maturity fund.
  • John Montgomery (California) commented on the flexible premium Universal Life policy and the fact that it is not really a whole life policy, but a term policy until the premium is actually paid.

1988-2, NAIC Proc.

ACTUARIAL

  • In essence, the model regulation assumes that at issue, all universal life policies are permanent plans.
    • [Bonk: model regulation = Universal Life Model Regulation]
  • The r-ratio is meant to measure the extent to which the policy is “on track” as a permanent plan.

2018 – Book – Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition, by Donna Claire, Lombardi and Summers

  • Chalke and Davlin point out that a policy (Universal Life) that provides whole life benefits assuming 10 percent interest is not a whole life plan if the guaranteed cash value is only 4 percent.
    • Such a plan is term insurance only for a period of years. 

—  Thomas G. Kabele

1983 – SOA – Universal Life Valuation and Nonforfeiture: Generalized Model, Shane A. Chalke and Michael F. Davlin, Society of Actuaries – 72p

  • Unlike adjustable life, where a current plan is defined, but is subject to change, a universal life policy at any time has only a “minimum” and a “maximum’ plan….
  • The adoption in 1983 of the Model Regulation for Universal Life provided recognition that these policies could be configured as whole life policies.

—  (p612-) – Attachment One-B, SOA – Task Force On Nonforfeiture Principles Interim Report-Tentative Conclusions

1989-1 (p662), NAIC Proceedings

  • (p299) – Whole life policies provide a guaranteed set of future cash values and death benefits for a specified premium. In other words, the terms are fixed and guaranteed…..”  
  • (p300) – Universal life insurance contracts have “terms that are not fixed and guaranteed,” (page 300)

2018 – Book -Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition — Donna Claire, Lombardi and Summers

  • In the last two years a new product has surfaced – combining the buy term and invest the rest into one product which is tax sheltered from the buyers point of view.
    • This product is the so-called “Universal Life.” 

—  Stanley B. Tulin

1981 – SOA – The Future of Permanent Life Insurance (rsa81v7n36), Society of Actuaries – 22p

  • Jesse M. SCHWARTZ: Why are people so reluctant to call Total Life permanent insurance?
    • [Bonk: Total Life = Universal Life Insurance]
  • Myron H. MARGOLIN: Universal Life type products are, I suppose, permanent.
    • It is a semantic question whether they are permanent life or not, but clearly they are not the traditional cash value products as we have known….

1981 – SOA – The Future of Permanent Life Insurance (rsa81v7n36), Society of Actuaries – 22p

  • Daniel J. McCarthy:
    • A regulator had told them that in that case they should not treat their Universal Life as though it was a Whole Life policy matured by paying the GMP (Guaranteed Maturity Premium).
    • Rather, you should assume that people will pay the guideline level premium, and that will give you a policy that provides guaranteed coverage for something less than the whole of life. What were the implications of that?  
  • Craig R. Raymond:
    • I guess I don’t disagree with anything you said.
    • The model regulation (Universal Life Model Regulation) has a structure that says you must go back to this level premium format.
    • You’re caught into this box where you’ve got a product that, when you go back to that format, it’s an iteration of the product that can’t exist.

1999 – SOA – 1999 Valuation Actuary Symposium, (va99-44of), Edward L. Robbins, Society of Actuaries – 28p

  • He said many consumers cannot distinguish between universal life and whole life.
    • He said a narrative explanation was needed because many did not understand the numbers or the fact that a universal life policy might drain the cash value until there was no coverage left.

— Mr. Barkacs, Western Southern

1994-3, NAIC Proceedings

ACADEMIC

  • A few companies have introduced a product known as Universal or Total Life.
    • The concept involves…the company withdraws an amount sufficient to pay the premiums for an annual renewable term coverage for the amount selected for the for the current policy year.
  • [Bonk: This passage was in Chapter 5 titled “Term Insurance,” p70]

1982 – Book – Life Insurance – Huebner and Black

GOVERNMENT

  • A Universal Life policy with a large insurance component can become a close substitute for renewable term insurance…

1984 – DOTT – The Taxation of Income Flowing through Life Insurance Companies, U.S. Treasury Department – 80p

  • (p196) – Overwhelming numbers of Life Insurance buyers do not even understand which, if any, elements of their sales illustrations are guaranteed.
    • For instance, as we demonstrated in our hearing, an Alexander Hamilton illustration did not make it clear that there was no guaranteed death benefit after 12 years.

—  Senator Howard Metzenbaum (D-OH), letter to the NAIC

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

LAWSUITS

  • Universal Life Is Permanent lnsurance
    • Mr. Affleck states that using the term “permanent” is “deceptive” with regard to universal life insurance.
      • [Bonk: Mr. Affleck = Plaintiff Expert Witness]
  • Universal life is considered “permanent insurance” in the industry.
    • For example, a governmental website for seniors, maintained by the Social Security Administration, has the following definition…
      • …”Permanent Insurance — including whole, ordinary, universal, adjustable and variable life — is protection that can be kept in force for as long as you live.”8

2003 – LC – Fay v Aetna – Rebuttal of Mr. Affleck’s Report, by Donna R. Claire

2010 LC Blumenthal v New York Life, Duration, Performance

NAIC

  • “Completely Flexible” – “The completely flexible life insurance plans are sometimes called “Universal Life insurance plans.”

1980-2, NAIC Proceedings

ACTUARIAL

  • “Dynamic Products” are products with premiums and benefits that can fluctuate from month to month…..
  • “Some common names for dynamic products include Universal Life…. ” (p288)

2000 – Book – Life Insurance Products and Finance, D.B. Atkinson and J.W. Dallas

  • The product was sold as permanent coverage.
  • Policyholders could, of course, develop many different benefit patterns depending on their level of contributions. (p323)

2018 – Book – Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition — Donna Claire, Lombardi and Summers

  • Because of the high level of flexibility provided in a “Universal Life” style Adjustable Life product….

—  David R. Carpenter

1979 – SOA – Future Trends and Current Developments in Individual Life Products (rsa79v5n44), Society of Actuaries – 24p 

  • Broken down to its simplest basis, Universal Life has eliminated the concept of “plan of insurance”….. 

— Christian J. DesRochers

1983 – SOA – Universal Life (RSA83V9N212), Society of Actuaries – 24p

  • Universal Life is a ratebook and more, all by itself.
  • If you say you have Universal Life, you in fact have more of a product than you probably have in your current portfolio at the present time. 

— Thomas F. Eason

1983 – SOA – Individual Life Insurance, Society of Actuaries – 22p

  • …product that I devised in 1962 called Universal Life.
  • Universal Life is not well understood and part of the mystery about it may well be due to a failure in my communication….
  • …..Universal Life was developed in 1962 as a generic plan, which means that it subsumes all other life insurance products.

1987 – The Search for New Forms of Life, by George R. (G.R.) Dinney, Actuarial Science – Actuarial Science: Advances in the Statistical Sciences 

INDUSTRY

  • …completely Dynamic services and policy opportunities for their customers to purchase and to elect a variety of options.
    • [Bonk: Not in NAIC Proceedings]

—  Michael Lovendusky, ACLI 

2019 1109 – NAIC – LIIIWG, Life Insurance Illustration Conference Call 

  • …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.” 

ACLI – Statement of the American Council of Life Insurance Before the NASAA NAIC Joint Regulatory Insurance – 10p

1982-1, NAIC Proceedings 

  • ACLI Fact Book – Appendix – Glossary of Insurance-Related Terms (AS OF OCTOBER 2017) – [link]
    • Universal life insurance…… Also known as adjustable life insurance.
    • Adjustable life insurance:  A type of life insurance that allows the policyholder to change the plan of insurance, raise or lower the policy’s face amount, increase or decrease the premium, and lengthen or shorten the protection period.
    • also found on – acli.com/about-the-industry/useful-terms (as of 2025 06)
  • In fact, it is accurate to describe Universal Life as a generalized version of the actuarial formulas underlying traditional life insurance products.
    • In other words, it is possible to produce any traditional plan of insurance from the generalized formulas  underlying universal life.  (p448)

—  Alan Richards, president and chief executive officer of E. F. Hutton Life Insurance Co.

1983 0510, 0511 and 0728 – GOV (House) – Tax Treatment of Life Insurance, Pete Stark (D-CA)  —  [BonkNote]

ACADEMIC

  • In fact, a UL policy will turn out to provide term life insurance, whole life insurance, or endowment insurance, depending on the premiums paid and other policy factors.
    • [Bonk: UL = Universal Life Insurance]

2015 – Book – Life Insurance, Black Jr., Skipper, Black III, (Huebner Series)

  • VIDEO: Exam MLC Problem 297 “Learning Objective “Universal Life.”
    • UW- Madison / SOA
    • Question: Calculate the Level Annual Premium that results in an account value of 0 at the end of the 20th year.” 
    • [Bonk: Goal: use a Universal Life policy to design a 20-year term policy.]

INNOVATIVE LIFE INSURANCE CONTRACTS

1989-Fundamentals-of-Risk-and-Ins-Vaughan-5th-Tree-Diagram – UL = INNOVATIVE

GOVERNMENT

 

DICTIONARY

Confusing

  • 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.

—   Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

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

  • Conflicts between Foundations and the Views of the Public
  • The foundations of actuarial science are not so esoteric or so abstruse that the average well-informed business person has great difficulty in  understanding them.
  • There are, however, points at which the actuarial view and that of the general public can come into conflict.
  • Actuaries will do well to recognize where these potential trouble spots are, and to do what they can to resolve misunderstandings.  (p78)

1989 – SOA – Fundamental Concepts of Actuarial Science, by Charles L. Trowbridge – 90p

  • We have to get out of our mode of talking about these policies in language that can only be understood by the person who wrote the language.
    • I find, after 30 years plus of experience in the life insurance business, that there is jargon used in illustrations that I don’t understand.
    • I can have difficulty in taking an illustration and figuring out what in the world the authors are trying to illustrate and how they are doing it.

—   Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

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

  • It is of great importance at the present moment that sound principles on the subject of insurance should be widely and rapidly disseminated.
  • Whether they act by producing conviction, or opposition, a step is equally gained:
    • nothing but indifference can prevent the public from becoming well acquainted with all that is essential for it to know on a subject, of which, though some of the details may be complicated, the first principles are singularly plain. 

1838 – Book – An Essay on Probabilities, and Their Application to Life Contingencies and Insurance Offices, by Augustus De Morgan

  • Mr. Bryant, Actuary of the New York Insurance Department:  The mystery of life insurance!
    • Why, there is not the least mystery in it.
    • The only mystery is, how it has managed to live so long on the reputation of having a mystery, which it has not.  [Laughter] (p128)
  • Gustavus Smith, Kentucky, Insurance Commissioner:  My attention was incidentally called to the subject of life insurance some year and a half ago, and when I found upon what a peculiar and very simple theory it is based, I was utterly amazed to think how little the thing was generally understood, and that the insuring public were utterly ignorant of what it was all about.
    • The committee of which I am chairman has before it for consideration this peculiar element of life insurance which I refer to, and I think if the members of the committee will closely attend to and study over that matter, they will have different views when they come back of the theory of life insurance from those which they had when they came here.
    • My opinion is that every intelligent man ought to understand this peculiar theory, and I hope that the beginning which we have made here, and the communications sent in and referred to the various committees, will spread before you an amount of information which will enable you to get out what I think has been kept a secret a little too closely and a little too long.
    • We will find that the mysteries of the actuaries’ art is no mystery at all, and that when they are fully comprehended there will be safety. (p128)

1871-1, NAIC Proceedings 

Rebating

  • Anti-Rebating Laws
  • Rick Nelson
  • Peter Katt
  • California Lawsuit
    • Judy Faucett
    • James Hunt
  • 1991 – Sun Sentinel – Insurance Industry Frowns on Cutting Commission for Client, [Rebating] – [link]
  • 1991 0613 – GOV – Insurance Competitive Pricing Act of 1991 – [PDF-237p – GooglePlay. No Video]
  • 1993 0326 – NYT – Insurers Cited on Barring Rebates, By Peter Kerr – [link]
  • Rep. Lehman
    • …stated that he looks forward to working with the NAIC and developing some sort of standard regarding rebate reform especially as agents become licensed in multiple states and they need to know multiple state rebate laws.
    • …noted he has heard debates over whether a frozen turkey would be considered a rebate, in addition to whether an agent could send flowers to a client’s funeral without violating rebate laws.
  • Supt. Cioppa noted that when passing Maine’s rebate reform law he told legislators that for egregious actions there are always unfair practices laws that can be used to address those actions and therefore rebate laws are not needed for that purpose.
  • Rep. Lehman noted that rebating laws are really protecting agents from each other because you never hear a consumer complain that they got a better deal.
  • Dir. Cameron stated
    • …that there was a situation in Idaho several years ago during the “universal life craze” when a couple of agents went to prison because they were rebating the entire first year premium.
    • They had a carrier that was paying them more in commission than the entire first year premium and of course they were not paying taxes on anything either.
    • …stated that he thinks rebate statutes are way out of date and need to be reviewed but it is important to be careful when getting into actually paying for part of the premium of the product that they are selling.

2019 12 – NCOIL – TENTATIVE GENERAL SCHEDULE NCOIL ANNUAL MEETING – 181p

  • Life insurance placed inforce at minimal cost (for example, by rebating of the selling agent’s commission) has been implicated in some insured murders.27
  • 27. According to Kwitny (1974), commission rebating may have been involved in the Mullendore case.
    • 1974 – Book – The Mullendore Murder Case, by Kwitny, Jonathan

2003 – JIR / NAIC – The Murder of the Insured By the Beneficiary: Attempting to Quantify One Moral Hazard Relating to Life Insurance Contracts – 29p

  • (p4) – After a brief report on the demographics of the respondents, the Subcommittee will review responses in four areas:
    • 4. Section 4 – Fraud – A review of various fraud mitigation practices employed to investigate or otherwise deal with suspected fraud including rebating activity.

2015 03 – SOA – Report of the Society of Actuaries Financial Underwriting and Fraud Prevention Survey Subcommittee, 2015-fraud-prevention-survey – Society of Actuaries – 67p

Grading

  • Actuaries did use interest assumptions in pricing their product, often as aggressive as 6 1/2%, which were graded to an actuarially responsible 4% or so.

—  Stanley B. Tulin

1981 – SOA – Asset Management for an Insurance Company, rsa81v7n45 – Society of Actuaries – 14p

  • Where were the people that wanted to do that when we were going through the process.
    • Folks, we’ve been talking about this for a year.
      • We have taken input from anyone and everyone.
    • If we had any sense that we could have had ten-year projections only, if we had any sense that we could have graded interest rates and that it would have gotten any support, believe me, we would have done it.
    • Where were you people when we were developing the model?

—  Thomas C. Foley, North Dakota, Regulator/ Actuary

1995 – SOA – Sales Illustrations, Society of Actuaries – 14p

  • Daphne Bartlett – California Actuary:
    • … suggested grading in the interest rate over a period of time to standardized assumptions.
    • … said that this would be an appropriate substitute for the sensitivity index. 
    • … saw several advantages.
      • It eliminated the portfolio versus new money problem because one could grade down, and the other might need to grade up.
    • …said the numbers generated by the illustration would be more realistic…
    • …said this would minimize the need for in-force illustrations.

1995-1, NAIC Proceedings

  • All these methods are based one way or another on the ancient truth that the present value of benefits, expenses, and margins must equal the present value of premiums.
    • When one considers the interest assumption, it must be remembered that rates are presently very high but may be showing signs of leveling off.
    • It seems inconceivable in view of the past that interest rates will stay at their present levels for a long period of time.
  • If the interest assumption in the early policy years is taken as the rate on new investments, the actuary should allow for the possibility of a reduction after the first few policy years and provide for a more conservative rate at the later policy durations.
  • [Bonk: Grading-?]

—  Samuel P. Adams

1968 – SOA – Premiums and Dividends for Individual Ordinary Insurance, Society of Actuaries – 30p

⇒ 1. What philosophy and techniques govern the determination of modern participating and nonparticipating premium rates and dividend scales?

  • Mr. Morgan also asked what percentage a field agent was allowed to use in an illustration and Mr. Nelson responded that it could not be larger than what was currently being paid, but in a declining market that may not be a valid projection of future results.  (p251)

1993-1, NAIC Proceedings

  • Mr. Morgan – Noel Morgan (Ohio)
  • Mr. Nelson – an insurance agent from Nebraska who is chair of the National Association of Life Underwriters Sales Illustrations Task Force (NALU)
  • The actuary should have the freedom, and the responsibility, to establish cash values that resemble real asset shares.
  • In my experience, minimum values during the first t policy years, grading to the reserve at duration n, have worked well, yet the Report dismisses this approach on the grounds (p. 36 of the Report) that it would not comply with the proposed segmentation methodology.
  • Let’s not mess up the cash values; let’s scrap the proposal.

1980 09 – SOA – TEKEL (Dan. 5:27) – by David H. Raymond, The Actuary, act8009 – Society of Actuaries – 8p

⇒  [Bonk: TEKEL = .biblegateway.com/verse/en/Daniel%205:27 – NIV – New International Version – Tekel: You have been weighed on the scales and found wanting.

  • 1993 – SOA –  The Valuation Actuary – An Overview of 1993 Developments – PRACTICE NOTE 1993-4 – vasp931 – 146p
    • Q: What approaches to modeling interest rates are included in current actuarial practice?
      A: Approaches currently used to represent interest rates in actuarial models may be broadly categorized as deterministic and stochastic. The most familiar deterministic approach is a single interest rate model, in which projections are made and present values are calculated using a single interest rate. A slight generalization of this approach is the single scenario method, in which a series of interest rates are used for future years, such as one rate for 15 years and another rate thereafter. A second deterministic approach is the multiple fixed scenario method. In this approach, several scenarios (series of future interest rates) are used. An example of this approach is the “New York Seven” scenarios, which are required for filings under New York Regulation 126. These are also the basic seven scenarios stated in the NAIC Model Actuarial Opinion and Memorandum Regulation (the Model Regulation). The multiple fixed scenario method can be further generalized by constructing yield curve scenarios (series of future yield
      curves).
    • Stochastic methods generally fall into two categories: random scenario models and option pricing models.
  • 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.
    • Mr. 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. 

  • Non-guaranteed Premium
    • On the other hand, at Transamerica Life Insurance and Annuity Company, our pension affiliate, the current premiums are priced using a level interest assumption, rather than the more normal assumptions that interest rates will decline.
    • For most of the products on the market, the current premiums are guaranteed not to be raised for a period of any where from one to six years from issue.
    • During this period when the current premiums are guaranteed, deficiency reserves would have to be set up based on the current premiums. 

— Denise F. Roeder, Occidental

1980 – SOA – Non-Participaring Life Products with Non-Guaranteed Premiums (rsa80v6n32), Society of Actuaries – 22p

  • 26 Mr. E. J. Moorhead, writing in Best’s Review, points out the problem facing the actuary in attempting to develop a competitive non-par product:
    • [A]ctuaries attempting to calculate nonpar premiums that will be competitive with illustrated prices of participating policies are faced with a problem that has no satisfactory solution. The actuary, concerned as he must be with company solvency and prosperity, dares not assume in his calculations that high investment yields will continue for many future years even though he usually is personally convinced that continuing inflation will produce that result.
    • Hence, he calculates nonpar premiums by allowing for high interest rates in the early years (when it really makes little difference what interest rate he assumes); and he grades the assumed interest rate downward in later policy years (when the policy reserve will have reached a size that makes even small interest rate differences of material consequence).
    • In the past. several years during which this observer has been publicly pointing·this out, no actuary experienced in nonpar premium calculation has risen to dispute its validity. ·

Moorhead, “Doomsday Just· Ahead for Life Insurance? Not Necessarily!” Best’s Review, 10, 12 (August, 1977). [hereinafter cited as Moorhead]  (p188) – <WishList>

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

Valuation

  • 1979 – SOA – Discussion of the Preliminary Report of the Committee on Valuation and Related Problems, rsa79v5n114 – Society of Actuaries – 44p
  • 1987 – SOA – Valuation Actuary Handbook. Chapter I – Life Insurance Company Statutory Valuation – 34p
  • 1990s – State Variations and Their Impact on Valuations
    • AAA – State Variations in Valuation Laws Task Force of the American Academy of Actuaries
    • 1995 – JIR / NAIC – Diversity of State Valuation Laws and Regulations, by Kenneth W. Faig, Jr, Polysystems – 22p

    • 1995 0822 – Report – AAA – Report – State Variations and Their Impact on Valuation, Report of American Academy of Actuaries Task Force on State Variations to NAIC

    • 1995 1121 – Report – AAA – State Variations and Their Impact on Valuation: Follow-Up Report, Report of American Academy of Actuaries Task Force on State Variations to NAIC

    • 1996 – SOA – VASP – State Variations from Standard Law, VASP9614 – Society of Actuaries – 20p

    • 1996 0510 – Report – AAA – State Variations in Valuation Laws, Report Of American Academy Of Actuaries Task Force on State Variations to NAIC
    • 1996 05 – SOA – State Variations and Their Impacts on Valuation, rsa96v22n183pd – Society of Actuaries – 28p
    • 1996 06 – SOA – State Variations and Their Impacts on Valuation, rsa96v22n2126pd – Society of Actuaries – 6p
      • Summary: Panelists discuss the impacts on preparing reserves and an Actuarial Opinion and Memorandum (AOM) caused by differing reserve requirements in each state. This session addresses compiling, analyzing, and opining on 50 sets of valuation laws, regulations, and procedures. The perspectives presented include those of an industry practitioner, a regulator, and a member of the AAA focusing on professionalism.
  • 2002 – AAA – Fair Valuation of Insurance Liabilities: Principles and Methods – American Academy of Actuaries
  • 2003 – SOA – Statutory Valuation Interest Rates for Life Insurance and Annuity Products, pdn-2003-iss57-whittemore – Society of Actuaries – 2p
  • 202x – NAIC – NAIC Valuation Manual – [link]
  • Prior to the end of the nineteenth century it had been necessary for all companies to use the method of valuation of policies then provided by law on what was known as the net level premium plan.
    • Under this plan it was extremely difficult to organize and develop new companies and there has been very few new life insurance companies organized prior thereto.
  • Beginning with the twentieth century a number of the Western states provided by law for the valuation of policies of companies upon what was known as the preliminary term or modified preliminary term basis, and it was these laws that permitted the organization and rapid growth of many companies throughout the Western and Southern states, as shown by the growth of companies on the schedules attached hereto, marked Exhibit “A”. (p168)

1940-0, NAIC Proceedings

  • Valuations Committee
  • In 1907, following the Armstrong investigation and as a result of the panic of that year, the N.A.I.C. adopted a resolution to set the stage to obtain uniformity in valuing securities.
    • Up to 1909, New York and Massachusetts, at their own expense, had prepared valuation lists which were used by other states. In that year, the Valuations Committee of the N.A.I.C. hired its own expert to prepare its list.
    • He was the first salaried staff employee of the N.A.I.C. Later the work was done by professional organizations for a fee; concerns like Moodys and Poor’s were employed, with various state insurance departments contributing to the payment of this expense.
  • Several times over the years, the N.A.I.C., through its Valuations Committee, has taken steps to adjust values in times of national economic stress or emergency.
    • As stated above, this was done during the panic of 1907.
    • It was undertaken again during the market demoralization of 1914 and again in 1917.
    • As a result of the stock market crash of 1929, the N.A.I.C. adopted so-called convention values in 1931.
  • Thus, upon at least four different occasions, the N.A.I.C., by realistic and timely action, became a potent factor in protecting the public against insolvency. (p11-12)

1958 0211 – Insurance Regulation in the Public Interest: “A BETTER N.A.I.C.” – by Robert E. Dineen – 122p

  • Mr. Dineen is:
    • a Vice President of the Northwest Mutual Life Insurance Company. 
    • a graduate of College of Law of Syracuse University. 
    • admitted to the New York and Wisconsin Bars. 
    • was Superintendent of Insurance of New York State from 1943 to 1950. 
    • served as President of the National Association of Insurance Commissioners (1946-1947).
  • Presented to Zone 4 of the National Association of Insurance Commissioners at a Seminar – Michigan State University

Off-Track / On-Track

2018 – Book – Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition, by Donna Claire, Lombardi and Summers

  • Richard Wicka (Chair) said the paper advocates for:
    • …additional information to be provided to consumers regarding how the timing of their payments impacts the product; and
    • …follow-up information to be provided to consumers at the time their payments go off-track so that consumers are aware of the impact to their policies.
    • [Bonk: Paper = 2016 0517 – LIIIWG – Assurity Resources – Consumer Issues Associated with Guaranteed Universal Life – NAIC – 11p]

2016-2, 0513 – NAIC Proceedings – LIIIWG, Life Insurance Illustrations Working Group

  • This was an optional idea that we called “Illustrations As Road Maps.
  • The concept is that instead of letting the actual performance of a Universal Life policy diverge over time further and further from what was originally illustrated, you could send policyholders a notice each year on the anniversary, if the results are below what was illustrated.
  • A letter would state the need to pay an additional amount to get back to what was illustrated, because interest rates are lower.
  • This would have two advantages.
    1. First, it would keep people on track with their illustrations.
    2. Second, it would help people understand the workings of their universal life policy.

—  John Keller (Northwestern Mutual)

1991 – SOA – Illustrations, Society of Actuaries – 20p

  • … in 2000 that the universal-life policy she bought in 1983 was financially off track.

2018 0919 – WSJ – Universal Life Insurance, a 1980s Sensation, Has Backfired, by Leslie Scism – [link]