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AG38 Adopted & Product Changes: Have you Checked your Policy Lately?

Thursday, November 15, 2012

Actuarial Guideline 38 (AG38) is an actuarial regulation that sets reserve requirements for all universal life products that utilize secondary guarantees, typically referred to as no-lapse guarantee (NLG) products. This regulation recently underwent revisions that affect policies issued on or after July 1, 2005, and that are in force until Dec. 31, 2012. These changes will also apply to policies made available as of Jan. 1, 2013, and primarily consist of increased reserving requirements.

While these regulations are focused on the pricing of guaranteed products, they are likely to impact the pricing of BOTH guaranteed AND NON-guaranteed products.  Due to the guaranteed nature of NLG products, carriers cannot increase rates on any affected in-force block of business. However, to comply with the revised reserving requirements on inforce business, and still meet profit objectives, some carriers will need to increase the rates on their current NLG products or discontinue those NLG products and/or create new products that will generally consist of increased pricing or modify other products lines to compensate for the increased costs with NLG. Because these regulations effectively change the “cost of doing business” in EXISTING guaranteed-type products, and because these additional costs canNOT be passed along to the policyholders of these guaranteed-type products, certain insurers are reported passing these additional costs along to policyholders of their NON-guaranteed-type products. 

It means now is the time to act. If you don’t know what you are being charged now, then you won’t know when your costs have been increased. Products have already changed since the announcement of AG38, and Veralytic has complied below a sample of changes since the announcement and changes proposed through the end of the year.

Carrier ranked in top 12% – UL & SUL reprice; full pays will increase approximately 3% on average; single-pay scenarios will increase approximately 13% on average

Carrier ranked in top 22%- NLG UL reprice

Carrier ranked in top 26% - Suspending NLG UL Sales 

Carrier ranked in top 8%-   the current NLG UL products cannot be carried over into 2013

Carrier ranked in top 14% -  All NLG UL Products discontinued

Carrier ranked in top 8% - UL & SUL Products premium restrictions

Upcoming Changes…

Carrier ranked in top 2%- UL and SUL reprice; new product will have prices similar to the existing UL/SUL rates

Carrier ranked in top 16%- UL reprice Discontinued UL, SUL, SUL NY & UL NY

Carrier ranked in top 15%-  New UL products will replace sales of the current UL and UL Joint products; reprice consisting of small price increases

Carrier ranked in top 18%-  UL discontinued; SUL reprice consisting of price increases;

Carrier ranked in top 18%-  NLG UL & NLG SUL reprice;

Carrier ranked in top 5%-   NLG UL premium requirements will be adjusted as follows: level-pay premium requirements will be increased up to 10% and short-pay premium requirements will be increased up to 25%; the range of premium requirement increases for tobacco users will be greater than for non-tobacco users

Carrier ranked in top 5%- UL & SUL reprice; price increases

Carrier ranked in top 10%- NLG UL & NLG SUL reprice

Carrier ranked in top 8% -  NLG UL and NLG SUL replacement and reprice; approximately a 3% average increase;

INSPECT WHAT YOU EXPECT! Use a Veralytic Research Report to measure policy expenses and know if a particular insurer is increasing or decreasing policy expenses. If you(r clients) do not know what they are paying for cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based "wrap fees" (e.g., M&Es) and premium loads in their life insurance policy holdings now, then there will be no way to know if or when such policy expenses are increased. Now is the time to find out.

The appropriateness of a policy should be re-evaluated when the insurer announces product changes.  In order to fully assess the impact of recent changes on your clients’ permanent life insurance portfolios, or to establish a baseline by which to judge the impact of future shifts in cost, request a Veralytic Research Report now.  Just fax the detailed expense report along with the policy illustration toll free to 800-409-3222end_of_the_skype_highlighting or email to to request a Veralytic Report for your client's policy.  If the policy illustration is not available, download a sample Request for Information (RFI) letter to gather the necessary policy information. 

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