AG49-A

Allen Trent

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Anyone out there seeing any news about how IUL illustrations will be impacted in the next 3-4 weeks?

Sounds like the aggressive illustrating around multipliers & how loans illustrate were biggest drivers. Some of those were really getting a bit out there without showing the entire picture/costs.
 
That pretty much sums it up from what I can tell and have heard.

Participating Loan arbitrage will be limited to 0.5%. Imo, that is the most questionable part of it all, as I did not think 1% was a large amount. But I get it.

The multipliers that come with large internal loads were the main driver. Really any strategy that is increasing internal fees. The high cap/fee indexing strategies will be limited from max illustrated rates.

I agree that it has become an issue. Its almost like a race to the highest multiplier. If we replicate the last decade, then most of them will work out well. (assuming the policy is funded correctly) But if we replicate the decade before that, polices will get slaughtered.

All multipliers do is transfer more risk onto the client. And most clients do not fully comprehend the potential ramifications of that increased risk.

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I would like to see the industry take a more comprehensive approach to illustrated rates.

Any agent who truly understand the real risk of IUL knows its not index performance. Its carrier renewal rates. The carriers know this as well, and lobby to keep it out of illustrations.

I would like to see the calculation use a Cap dictated by a 10 or 20 year rolling average of renewal rate decreases. They could use a % based reduction of the current Caps using the average reduction across that product line.

For example: if a carriers renewal rates averaged out to be 20% lower than the first year rate, the current cap must be lowered by 20% to find the max illustrated rate.

They should also do something to show the effect of internal expenses. Such as including a 10 or 20 year rolling average for expense increases.

At minimum, make a separate section of the illustration showing these things.

Showing a constant rate is also an issue. The Indexed Annuity Industry has evolved away from illustrating a constant rate, instead they are showing past 10 or 20 year scenarios. Along with Lowest and Highest 10 year scenarios over a 40 year period. Its not perfect, but its certainly a more realistic representation of how it will look over a stretch of time. There is no reason in the world the IUL industry cant do something similar.... other than the fact it will kill off the boom in IUL sales....
 
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Yes, the newest variation has already been ruled on and decided a while ago. The new rules will officially go into effect on November 25, 2020. As you probably recall, the first version was rolled out back in 2015. This new version set for November is essentially their third version. As you mentioned, it will also address enhancers, bonuses and multipliers and how they are illustrated, but it does not eliminate them or make them illegal etc. As with previous versions, this addresses rules for IUL illustrations. I'm sure you'll be seeing some notices soon from carriers you work with. Hope this at least helps a little! ~ J. Brown
 
I am not an IUL guy and this is not meant as a knock.
How do these regs handle inforce policies?
Are they ran under the new guidlines?
Does the producer have a choice?
Just curious
 
I am not an IUL guy and this is not meant as a knock.
How do these regs handle inforce policies?
Are they ran under the new guidlines?
Does the producer have a choice?
Just curious

my take is that because this pertains only to illustrations, it wouldnt impact the actual performance of the policy. however, it would impact existing annual statements or inforce reprojections that are run as those annual statements & inforce illustrations will also have to be run with the new AG49-A regulations. My guess is the illustrations will show a lower credited rate than were being shown. Some carriers illustrations may have little to no impact if they were not an aggressive multiplier carrier, etc. on top of this issue, all IUL illustrations at point of sale & annual statements are already being impacted by the lower caps & participation rates being available in this low interest/treasury rate environment
 
NAIC has adjusted the effective date of AG49-A to December 14, 2020. Changes apply to new business only. Policies issued December 14, 2020 and later will be governed by AG 49-A for new and existing policy illustrations. Policies issued prior to December 14, 2020 will continue to comply with the AG 49 guidelines.
 
You are going to see companies with the huge expense/multiplier products all come out with replacements that illustrate much lower performance. Lincoln just did it yesterday or today and Pac and Hancock will be following suit I would think.

The crap they were peddling was criminal IMO. It was simply a product designed around illustration parameters, not on providing value to customers. They knew it and agents should have known it.

Now we will see when the class action suits start getting filed. Maybe they already have and I don't know about it.
 
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