1982-2

  • Advisory Committee on Policy Lapsation
  • LIFE INSURANCE COST DISCLOSURE·HISTORICAL
    BACKGROUND - Attachment 1 (p485-486)
  • LIFE INSURANCE [SOLICITATION] DISCLOSURE MODEL REGULATION - Attachment Two  - The chairman then indicated that he had received a proposed revision of the NAIC life insurance solicitation model regulation submitted by the ACLI.(p487-499)
  • (524-526) - STATEMENT ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURANCE TO THE NAIC (A) COMMITTEE'S MANIPULATION, LAPSATION, D1VlDEND PRACTICES AND
    ANNUITY DISCLOSURE TASK FORCE - June 8, 1982
  • (529-530) - STATEMENT OF PAUL J. MASON - BEFORE THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS
  • New York reports that they have determined that Section 216 and 208, (a) and (b), and perhaps other sections of their law, prohibit the issuance of universal life type products.
  • Their law is currently being amended to permit such policies.

1982-2, NAIC Proceedings

The Life Insurance (A) Committee recommends to the Executive Committee that a task force with an industry advisory committee be appointed to be known as the "Universal Life Insurance Task Force."

The task force would be charged with:

  • gathering appropriate information and recommendations,
  • holding hearings and
  • developing a Model Universal Life Insurance Regulation.

The regulation should address appropriate issues of regulatory concerns, including the following:

  • 4. The manner in which prospective purchasers of such plans are fairly and accurately appraised of the nature of such plans and the manner in which existing policyholders under such plans are informed of the nature and status of their purchase.

1982-2, NAIC Proceedings

9. Related Financial Services by Life Companies and Affiliates

The chairman indicated that Arkansas had asked that this subject be placed on the agenda.

No one was present from Arkansas to make their  presentation.

However, the chairman reported that some insurance companies are considering getting into other fields, either directly or through affiliated companies.

  • Some of these included the marketing of money market certificates and other types of financial instruments not considered insurance products.

This subject will be carried over to the next meeting with an invitation to all interested to present written comments to the (A) Committee.  (p355)

1982-2, NAIC Proceedings

Bill White, chief actuary, New Jersey, reported on their special project pertaining to universal life.

Their commissioner, on June 25, 1982, declared an 81-day moratorium on "Universal-Flexible Factor" type of policies.

  • His staff was directed to (1) study the matter and issue a position paper on the subject; (2) conduct public hearings on March 10-11; (3) terminate the moratorium April 16 with the publishing of a set of guidelines. Reports and results have been mailed to each insurance department.
  • Some of the questions New Jersey conveyed included: (1) are these policies participating or non-participating; (2) the "Bait and Switch" potential; (3) disclosure; (4) Federal Income Tax aspects; (5) non-forfeiture values; (6) replacement problems.
  • The concern was not just with the "twisting" replacements, but was the impact of justified replacements on the solvency of replaced companies.

1982-2, NAIC Proc

8. New Product Developments and Resulting Problems

  • Jim Jackson of Transamerica/0ccidental Life gave a brief expression of the background and concern of the new so-called "Universal Life" products.
    • He reported that several states have prepared regulations or guidelines, and that the industry feels a strong need for uniformity between states.
  • Chairman Barnes proposed a recommendation to the Executive Committee that a task force with an industry advisory committee be appointed.
    • He presented a written recommendation, which included the issues to be covered by such task force if approved by the Executive Committee.  (p355)
  • The (A) Committee unanimously adopted the recommendation, a copy of which is attached to this report. (Attachment Two)

1982-2, NAIC Proceedings

I. Objectives of the New (A) Committee

The chairman indicated that he had conducted a survey of the committee members asking for suggestions and the order of
priority of the top five subjects each felt needed to be handled.

He had also asked for the suggested priority to be applied
to the task forces, and for other comments the committee members may have.

Without placing the compilation in any order of priority, the following were included in the responses:

a. Simple disclosure form for universal type life products, as well as other simplified cost disclosure methods.
b. Review of Replacement Regulation along with discussion of problems of mass replacements.
c. Manipulation, Lapsation, Dividend Practices and Annuity Disclosure.
d Prompt completion of the model Group Life and Health Law.
e. Impact of possible IRS Tax Rulings relating to the new universal life type products.
f. Life insurance companies entering into other financial areas and the problems relating as a result.

1982-2, NAIC Proceedings

3. Universal Life and Related Plans of Life Insurance and Annuities

This is another topic which the Life Insurance (A) Committee assigned to the group on December 17, 1981.

It corresponds to the specific instruction that "A review of special plans with unusual characteristics should be continued."

  • The group feels that this review of special plans would also authorize work on "Other Special Plans," which is listed separately as the next topic heading in this report.
  • The December 1980 version of the model Standard Valuation Law and the Standard Nonforfeiture Law for Life Insurance contemplates that regulations will be issued pertaining to minimum reserves and minimum nonforfeiture values for universal life plans and related plans. Such regulations would be issued by the commissioner of insurance in each state, but it is hoped that there will be considerable uniformity among the different states.

1982-2, NAIC Proceedings

4. Other Special Plans

  • This topic heading is concerned with indeterminate premium life insurance plans, single premium life insurance plans with minimum death benefits, and other life insurance or annuity plans which can not be handled under traditional actuarial procedures.
  • As stated under the previous topic heading "Universal Life and Related Plans of Life Insurance and Annuities," the Life Insurance (A) Committee has instructed the group that "A review of special plans with unusual characteristics should be continued."
  • The group feels that this review of special plans would authorize work under both of these topic headings.

1982-2, NAIC Proceedings

Standards for illustrations

As I've mentioned in previous meetings, illustrations for universal variable life insurance policies must be prepared on a standard basis from company to company.

With the probability of relatively few guarantees in a universal variable life policy, it becomes essential that clients understand the differences between hypothetical results, guaranteed results, current results and illustrative dividend results.

Our initial view is that since these products will be registered with the SEC, it may be appropriate to rely on the SEC to develop a federal standard for these products.

We're concerned about the possibility of requirements varying state by state. (p532)

--  Jerome S. Golden <Monarch> - Chairman - Variable Products Advisory Committee

1982-2, NAIC Proceedings