How does Fed Rate cut affect IULs/WL?

[marindependent]

I think in the whole lifemarket you are likely to see a repricing of products.
I think companies will go to a 3 percent guarantee to increase premiums.

Well Said Lloyds of Lubbock

 

[marindependent]

I would add the following from the Wall Street Journal:
"U.S. insurers are doing the once unthinkable, turning away business from some Americans who want a life-insurance policy. The driving force behind the action: a collapse in interest rates tied to the spread of the new coronavirus and an expectation from insurers that rates won’t rebound significantly anytime soon."
Source.

 

[Lloyds of Lubbock]

Im no actuary. But I dont see how that would be possible in the current rate environment. I expect to see guaranteed rates to drop, because they are based on the current interest rate environment (which has dropped like a rock).

If you lower the valuation rate it raises the premium.
Pretty much what you said.
Companies that are issuing products in a 412e3 generally yse a 3% valuuation on the guarantees to drive up the premium and tax deduction.

I hope everyone has a great Memorial Day weekend!

 

[Allen Trent]

looks like fed rate cuts & current treasury rates have affected most IUL products. According to this LIMRA survey of 25 carriers most have had impacts on caps/par rates/illustrated rates. I would assume this survey is from April, not May, so more could have by now

 

[fed up]

Well, we were warned off IUL's over the last 2 weeks

 

[Allen Trent]

Well, we were warned off IUL's over the last 2 weeks

There you go, attacking the innocent nice helpful gentleman

 

[WMSG]

Personally I’ve already seen the big mutual life insurance companies specifically Mass Mutual and Guardian lowered their dividend rate before the outbreak even occurred. Mass mutual went from a 6.4 to 6.2 and guardian went from 5.85 to 5.65. I believe the low interest rate environment will stay the same for a long period of time like its been already and insurance companies are the first to take action to stay ahead of all the other industries in general. That’s my thought

Very good point. The pandemic had nothing to do with it. You are right, they've been reducing their dividend "rate" for years, keeping it the same, but reducing various components that go into the dividend. That said, the "rate" -- meaning the number is meaningless. The dividend "rate" can stay the same, but the dividend component can still be reduced, and drastically. 99% of the agents in the business don't understand it.

The low to no interest rate environment does have a major financial impact on life insurance companies. Certain impact(s) on mutual companies like Guardian and Mass Mutual, same, similar, and different impact(s) on stock companies. Various life insurance companies have different reactions -- and agents see it all the time. They may just not recognize it. The impact on the general reserves, and the investment/portfolio of the insurance company is impacted in a major way, and that has a domino-effect -- it sends ripples -- throughout the entire company. Couple that with changes to reserve requirements, accounting, regulations, etc. -- and most of that takes place outside the field of view and comprehension of most agents -- and the impact can be potentially massive.