At the National Association of Insurance Commissioners’ Summer 2024 National Meeting, the Life Insurance and Annuities (A) Committee received a report of its Life Actuarial (A) Task Force and a presentation on indexed universal life (IUL) and fixed indexed annuity (FIA) illustrations. Judith French, director of the Ohio Department of Insurance and chair of the Life Insurance and Annuities Committee, stated that she looked forward to future discussions on the potential need for changes to IUL and FIA illustration regulations. The committee heard from the following:
- The Life Actuarial Task Force, which reported that the Indexed Universal Life (IUL) Illustration (A) Subgroup, as well as state regulators, have been reviewing illustrations and are questioning whether additional regulatory changes are needed. The subgroup’s review has not been focused just on IUL products but also on other life insurance products and annuities.
As to IUL illustrations, the subgroup has been assessing IUL illustration compliance with current Actuarial Guideline XLIX-A—The Application of the Life Illustrations Model Regulation to Policies With Index-Based Interest Sold on or After December 14, 2020 (AG 49-A). While the latest revisions to AG 49-A were found to be initially effective in addressing maximum illustrated rate company outliers, it was a surprise that the IUL illustrations included hypothetical returns or historical averages displayed in the illustrations alongside the maximum illustrated rates. As a next step, state insurance regulators will be following up with companies to better understand how companies see this practice as fitting within the current requirements.
- Richard Weber of the Life Insurance Consumer Advocacy Center, who reported on his presentation to the Consumer Liaison Committee. He also stated that consumers view the most favorable illustrated results as future projections of values under their IUL or FIA. He noted that even though IUL illustrations comply with the NAIC’s Life Insurance Illustrations Model Regulation (#582), that model is 30 years old, and it did not contemplate indexed products. He criticized such illustrations’ use of a constant interest rate, which is a hit-or-miss approach, as the actual interest credited would fluctuate between the guaranteed rate and, generally, the current cap. He pointed out that a single constant interest rate does not take a more realistic sequence of returns for the applicable index into account.
- Two insurance companies, who discussed the industry and insurer experience with the current illustration regulations and the range of disclosures and consumer and producer educational materials. The regulatory landscape is even more unsettled for FIA than for IUL illustrations, as only a limited number of states have adopted the Annuity Disclosure Model Regulation (#245)’s requirements for fixed annuity and FIA illustrations.
At the conclusion of these discussions, Fred Andersen, chair of the IUL subgroup, explained that state insurance regulators are reviewing life and annuity illustrations and other marketing materials. He said they plan to develop findings and discuss how best to address short-term and long-term issues. So it appears that annuity and life illustration requirements are probably up for considerable change, and where all this will land remains quite uncertain.
