All posts by Tom

President of Wiig-Codr Underwriters Company

AG 49: What You Need To Know

NAICAs of September 1st, 2015, all IUL illustrations are going to look a little bit different.

The National Association of Insurance Commissioners (NAIC) has adopted a new Actuarial Guideline 49 (AG 49) for IUL Illustrations.

Carriers will now have to illustrate using a benchmark rate which averages all 25 year loopback periods over the past 66 years (since 1949.) They will have to assume the S&P 500, with a zero floor, and some form of cap.

These guidelines come as a result of innovation in the market. Each carrier uses different period durations, with different indices, cap rates, participation rates, and spreads among other variables- making it close to impossible to compare apples to apples.

This doesn’t mean that products are changing or will perform differently. However, they all will be put through the same wringer.

On March 1st, 2016, two other tweaks will be implemented. Participating loans to IUL policies are loans where 100% of the cash value still “participates” in the market (despite being pocketed) will no longer be able to illustrate more than 1% arbitrage.

In other words, if your cash value is earning 6% in the index, your loan against the policy can’t show more than 5%.

Also, there will be new disclosures (sorry- the illustration just got longer!) In essence, now they must include a ledger that shows the fixed account performance (which nobody uses anyhow). If a loan is used, it can’t use ANY arbitrage, period.  Also a table of actual historical performance over the most recent 20 years. And finally, a table which shows the minimum and maximum ranges of all 25 year lookbacks (the best & worst.)

In conclusion, the benchmark summary is a good start. An equalizer was needed for comparison sake, no doubt. However, I think you’ll see innovation stemmed with these new regs. Being married to the benchmark sacrifices the true differentiators. Overall, it’s good medicine to bolster the reputation of IUL as a reliable, viable, long-term product.