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Session 5.2 – Life Insurance Product Update Brave New World. LOMA/ LIMRA/SOA Life Insurance Conference. Timothy C. Pfeifer, FSA, MAAA Pfeifer Advisory LLC. April 17, 2013. Brave New World. Indexed Universal Life. Market Profile. Sales in 2012 reached at least $1.3 billion

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Session 5 2 life insurance product update brave new world

Session 5.2 – Life Insurance Product UpdateBrave New World

LOMA/LIMRA/SOA Life Insurance Conference

Timothy C. Pfeifer, FSA, MAAA

Pfeifer Advisory LLC

April 17, 2013

Brave new world
Brave New World

Indexed Universal Life

Market Profile

  • Sales in 2012 reached at least $1.3 billion

  • Continuation of ten-year trend of average premium growth of about 30% (34% in 2012)

  • Strong growth by National Western, Allianz Life, American General

  • New entrants poised to enter

  • Top four carriers nearly half the market

  • Some insurers likely never to offer Index UL

  • Product is now mainstream, well suited for low interest rate environment

% of US Equity Managers Underperforming the Index

(December 31, 2012)

Source: Standard & Poors, December 2012 SPIVA Scorecard

Product trends emerging on indexed universal life
Product Trends Emerging on Indexed Universal Life

Strengthened death benefit guarantees, but not competitive for single and limited pay

New index crediting approaches, but S&P variations and rainbows dominate

Addition of LTC and chronic illness features

Treasury-Indexed UL

Death benefit paid as a stream

Policy loan designs which control divergence between AV and Loan Balance

Focus on 25-year look back bogey for index selection vis-à-vis illustrations

Indexed universal life what are the major issues
Indexed Universal Life – What Are the Major Issues?

Sales Illustrations

Nearly Lapse Supported

New Directions

Lack of Uniformity

Front-ended COIs, Expense Loads

Simplified Issue

ACLI Task Force-25yr LB

Not as viable in rising interest rate environment


Loan Performance

Pressure to Provide Strong DB Guarantees

New Indices

Inforce Illustration Capabilities

Life expectancy adequate?

Shadow Accounts?

Variable universal life continues to suffer from weak sales but some renewed product development
Variable Universal Life Continues to Suffer from Weak Sales, but Some Renewed Product Development

2012 Variable Life Sales:

Premium = 0% growth

Count = (10)% growth

COLI and Private Placement Sales very Influential in these Numbers

Source: LIMRA

Analysis of ability to add competitive death benefit features

VUL not subject to AG38, but VUL has its own reserve rules

Only one carrier has really shaken market with competitive DBG on VUL

Variable universal life has witnessed some renewed design activity
Variable Universal Life has Witnessed but Some Renewed Product DevelopmentSome Renewed Design Activity

Recrafted products from existing players, not new players

Reaction to lowered valuation interest rates

Insertion of Indexed Accounts into VUL, a la VAs

Meaningful chatter about guaranteed income/withdrawal features

Inclusion of LTC and Chronic Illness Components

Current assumption ul trying to find a popular niche in this tough environment
Current Assumption UL Trying to Find a but Some Renewed Product DevelopmentPopular Niche in this Tough Environment

Low interest rates challenge the competitive illustration story

Some carriers have migrated away from SGUL to a non-guaranteed, but competitive, premium-to-carry structure

Modest period of true no-lapse guarantee death benefits

Limited pay scenarios can be priced more attractively due to lack of guarantee

Guaranteed Death Benefit UL has Adapted Under the Impact of Actuarial Guideline 38 and Low Interest Rates

Rates increased as of January 1, 2013 if not sooner

Shift to Single Tier Shadow Accounts

Limitations of Premium Payments impact Single Pays

Older ages seeing the biggest price bumps

Another round of pricing changes in early Q3

Trimming of commissions

Thank you

Thank You! Actuarial Guideline 38 and Low Interest Rates

Timothy C. Pfeifer, FSA, MAAA

E-mail: [email protected]