1988-2

(p434) - Two-B -Proposed regulation by the California Department of Insurance, draft dated 4/11/88 concerning the valuation of universal life insurance plans.

  • The regulation provides for the pre-funding of cash values, so that the amounts will be available upon policyholder demand, and will not be contingent upon sufficient surplus being available at that time to cover what is the equivalent to a demand deposit.
  • p402 - Summary of Various Proposed Changes from the Current Universal Life Model Regulation
    • Future Benefit Illustrations
    • Future Benefits
  • p433 - Proposed Regulation Concerning the Valuation of Universal Life Insurance Plans (Attachment Two-B) 
  • 2. Add Project 41 - Whole Life Policies Without Cash Values or Paid-up Benefits

a. Valuation and Nonforfeiture Sections of NAIC Universal Life Insurance Model Regulation

John Montgomery (Calif.) reported on the progress of amendments to the NAIC Universal Life Insurance Model Regulation, consisting of two items:

  • nonforfeiture and valuation.

Mr. Montgomery indicated that the nonforfeiture provisions of the model will be discussed at a meeting to be held this afternoon.

  • With respect to the valuation section, he referred task force members to the California draft which will be discussed by the Actuarial Task Force concerning valuation of universal life insurance plans.

Mr. Montgomery made a motion to recommend changing the name of the task force to the "Product Development (A) Task Force."

  • He explained that the reason for considering the name change is to include the numerous products other than universal life that are being addressed by this task force.
  • In addition, he commented that the name change would parallel the section of the Society of Actuaries dealing with the same issues.
  • The motion was seconded and adopted.

Commissioner Hager asked the Life and Health Actuarial Task Force to expound on its discussion of disclosure issues.

  • Mr. Montgomery commented on the flexible premium universal life policy and the fact that it is not really a whole life policy, but a term policy until the premium is actually paid.
  • He also commented on the difficulty in preparing and analyzing the yield index disclosure conflict.

Upon motion duly made and seconded, the task force established a working group on identifying consumer disclosure issues to be chaired by Iowa and to include the states of California, Texas and Massachusetts.

  • Any other states interested in serving on this working group should contact the chair following the meeting and a notice will be posted on the fifth floor of the Marriott concerning a meeting to be held tomorrow.
  • He also commented that the disclosure issue would be coordinated with the Life Cost Disclosure Task Force

Commissioner Hager asked for a report on the result of the survey which was sent over the State Telecommunications Network to all states asking them for identification of any consumer/disclosure concerns over universal life insurance, variable life insurance and any other related interest-sensitive products.

  • Carole Olson (NAIC) reported that at least five states had responded to the message which was sent out on June 4 and that a written report would be presented at the September meeting.
  • 4. Report of the Education, Research & Training (EX) Task Force
  • 17. Discussion of the NAIC Life Insurers Survey
  • 1. Discussed 1988 charges and identified new consumer/ disclosure related concerns with universal life, variable life and other interest sensitive products.
  • 6. Heard report on survey of states on identifying consumer/disclosure concerns regarding universal life, variable life and other interest sensitive products
  • 9. The Universal and Other New Plans (A) Task Force was directed to address disclosure requirements in universal life policies, the practice of not including "mortality charges" when pricing these products, and to review the possibilitiee of using principles in mutual funds disclosure fur the sale of variable life products.
    • Director Washburn also recommended that pricing information be expanded.
  • Mr. Clark reported that the Study Group on Accounting and Reporting for Deposit-fype Business is reviewing the Federal Accounting Standards Board Rule #97, which deals with certain long-term contracts, particularly Financial Condition (EX4) Subcommittee

Possible Model Regulation Wording for The Guaranteed Maturity Premium Test

A policy will satisfy the requirements of the Guaranteed Maturity Premium Test if its guaranteed cash surrender values (as defined below) equal or exceed the minimum cash surrender values (as defined below) at each policy duration.

  • The Guaranteed Maturity Premium for a flexible premium universal life insurance policy shall be that level gross premium (ignoring any minimum premium requirements), paid at issue and periodically thereafter over the period during which premiums are allowed to be paid, which will mature the policy on the latest maturity date, if any, permitted under the policy (otherwise the highest age in the valuation mortality table), for an amount which is in accordance with the policy structure.

The GMP is calculated at issue based on all policy guarantees at issue (excluding guarantees linked to an external referent).

LIFE AND HEALTH ACTUARIAL (EX5) TASK FORCE
Reference:
1988 Proc. I p. 480
1987 Proc. II p. 457
Roxani Gillespie, Chairman -Calif.
Doyce R. Lee, Vice Chairman-Texas
CONTENTS
June 11 and 12, 1988 ................................................... 392
Report to the Life Insurance (A) Committee (Attachment One) .......... 395
Report to Universal and Other New Plans (A) Task Force
(Attachment Two) ................................................. 399
Letter with Enclosures Summarizing Progress on Revision of the
Nonforfeiture Value Provisions of the Universal Life Model Regulation
(Attachment Two-A) ........................................... , . 400
Proposed Regulation Concerning the Valuation of Universal Life Insurance
Plans (Attachment Two-B) ....................................... 433
Disclosure Draft of Proposed Actuarial Guideline IX-A for Substandard
Annuities (Attachment Two-C) ................................... 441
Disclosure Draft of Proposed Actuarial Guideline IX-B for Structured
Settlements (Attachment Two-D) ................................. 442
Disclosure Draft on Proposed Revision of NAIC Model Regulation fur
Variable Life Insurance (Attachment Two-E) ...................... 445
Report to the Life Cost Disclosure (A) Task Force (Attachment Three) ... 452
Yield Index Advisory Committee Report (Attachment Three-A) ....... 452
Report to the Accident and Health Insurance (B) Committee
(Attachment Four) ................................................. 457
Drafts of Minimum Reserve Standards for Individual and Group Health
Insurance Contracts (Attachment Four-A) ......................... 460
Report to the Financial Condition (EX4) Subcommittee
(Attachment Five) ................................................. 4 7 4

  • Our Committee on Life Insurance has engaged in  considerable effort in developing proposed revisions to the valuation and nonforfeiture provisions in the Universal Life Model Regulation for the Life and Health Actuarial (EX5) Task Force.
    <American Academy of Actuaries Committee on Liaison with NAIC>