Lincoln to Add Variable Universal Life-Long Term Care Hybrid

[hunschuld]

Can you elaborate on this point please

Will try. to recap Dividend rate is not an interest rate it is the % or profits shared with policy holders. Three things go into the profits. Mortality cost , policy expenses and portfolio return. The biggest driver is portfolio return. Expenses cut both ways. They go up company has high profits but since they come in the form of policy charges policy performance goes down, how much or mortality improvement goes into reserves vs going into profits to be shared is a black box that is adjusted annually so we come to portfolio returns.
Since early 90,s com interest rates have been falling this means every day high interest rate bonds are maturing out of the portfolio being replaced by low interest rate bonds. This has accelerated in the last decade to the point where a 30 year treasury at 7% or better in now being replaced by a 30 year at 1.8%. This is the reason why companies got so into pusher Bank on yourself concepts. they earn far more loaning out policy money to policy holders than investing in Bods. This is also why Mutual companies have moved to far riskier holding. I have a study that breaks down the increases in common stock holding for all major mutual companies. a market crash will have a large negative effect on all these Mutual companies but it is clear agents are oblivious to this risk.

National Underwrite used to publish a report, it stopped in 2013 when the gentleman that put it together died that showed the illustrated performance at time of sale for all major companies both standard whole life and whole with PUA rider and the actual ROR for all these policies and companies

No company ,none came close at the 10 or 20 years performance to matching the illustrations that we done at time of sale in all cases the dividend projections were far greater than the actual dividends paid The actual ROR at 20 years ranged from 2% to 3.8% depending on company and PUA rider..
This problem has only gotten worse since then and it will continue to worsen for at least the rest of this decade. However Whole life policies continue to be sold showing dividend scale and projected growth that the companies hope somehow they can meet but know they can not and historical facts show they have not this entire century.

 

[Tothetop]

Will try. to recap Dividend rate is not an interest rate it is the % or profits shared with policy holders. Three things go into the profits. Mortality cost , policy expenses and portfolio return. The biggest driver is portfolio return. Expenses cut both ways. They go up company has high profits but since they come in the form of policy charges policy performance goes down, how much or mortality improvement goes into reserves vs going into profits to be shared is a black box that is adjusted annually so we come to portfolio returns.
Since early 90,s com interest rates have been falling this means every day high interest rate bonds are maturing out of the portfolio being replaced by low interest rate bonds. This has accelerated in the last decade to the point where a 30 year treasury at 7% or better in now being replaced by a 30 year at 1.8%. This is the reason why companies got so into pusher Bank on yourself concepts. they earn far more loaning out policy money to policy holders than investing in Bods. This is also why Mutual companies have moved to far riskier holding. I have a study that breaks down the increases in common stock holding for all major mutual companies. a market crash will have a large negative effect on all these Mutual companies but it is clear agents are oblivious to this risk.

National Underwrite used to publish a report, it stopped in 2013 when the gentleman that put it together died that showed the illustrated performance at time of sale for all major companies both standard whole life and whole with PUA rider and the actual ROR for all these policies and companies

No company ,none came close at the 10 or 20 years performance to matching the illustrations that we done at time of sale in all cases the dividend projections were far greater than the actual dividends paid The actual ROR at 20 years ranged from 2% to 3.8% depending on company and PUA rider..
This problem has only gotten worse since then and it will continue to worsen for at least the rest of this decade. However Whole life policies continue to be sold showing dividend scale and projected growth that the companies hope somehow they can meet but know they can not and historical facts show they have not this entire century.

Thanks for explaining your point. I wouldn't say whole life policies are not meeting the illustrations that are used to sell them since 1990. That's a bit misleading and too much of a blanket statement

If anything, that's what makes a whole life policy different from other permanent products. It's the clear cut guaranteed cash values listed in the illustration.

What you are referencing are dividends. Some of the big mutuals are very conservative in their dividend illustrations and continue to advise their agents to express that dividends are not guaranteed.

In addition some of them even out performed the dividends listed in their illustrations in the non-guaranteed columns and Im referencing policies sold in the last two decades.

 

[hunschuld]

In addition some of them even out performed the dividends listed in their illustrations in the non-guaranteed columns and Im referencing policies sold in the last two decades.[/QUOTE]

Ahh if so you have to ask yourself how? How could they do this when the return on their AAA bonds,the heart of a companies portfolio, has dropped through the floor.
The answer is they have dropped lower on the risk scale in a reach for returns.Companies that has 2% of their portfolio in common stocks now have 8* to 10%, they have doubled their preferred stock holdings ,increased the % of the bond portfolio in B rated bonds.
All the things that go against one of the selling points of whole life ,how safe and risk free the policies, dividends and companies are.
Back in the day Executive Life always touted its AAA S&P rating and the high ratings of its bonds and look how that turned out. Moving down the asset safety scale to support or increase dividends may not be a good thing.

 

[Allen Trent]

In addition some of them even out performed the dividends listed in their illustrations in the non-guaranteed columns and Im referencing policies sold in the last two decades.

I had always heard that Mass Mutual outperformed because they owned other companies, not just that they had traditional holdings entirely in their life company. IE they owned Oppenheimer Funds & that delivered unexpected returns to the owner which was Mass Mutual.

Had always heard NWM had their dividend stag higher for longer because they went long in bonds in the 80s or 90s. When most carriers held bonds of 10 yrs or less, they had 30 yr bonds, helping them to not suffer as quickly.

No idea if either is true as I have never been affiliated with either

 

[hunschuld]

Allen you are correct in both cases. Sammons group pulled the same thing just last year.

They had gone extra heavy into AAA's a few years ago and when interest rates fell they made a huge profit selling some of their excess( based on what they need to support their policies and meet state guidelines etc) to other companies that needed them. They then for a time we able to offer incredible rates on some of their annuity FIA's because the profits allowed them to move down the risk ladder and buy a large quantity of higher interest lower rated bonds.

All companies have the same limited universe to invest in so when one can giver better rates they either made a really smart move or are doing something incredibly risky. Mass moved to find higher return outside profit generators.

 

[scagnt83]

They then for a time we able to offer incredible rates on some of their annuity FIA's because the profits allowed them to move down the risk ladder and buy a large quantity of higher interest lower rated bonds.

I have had terrible experiences with sammons renewal rates. Wish I never did business with them in the first place.

The old riders are guaranteed, so not much to worry about. But the actual renewal rates on the underlying contract were extremely disappointing. Same on their IUL.