Guaranteed Maturity Premium (GMP)

"The <Universal Life> Model Regulation <NAIC> assumes that future premiums will be paid at the whole life level, and calls this premium the GMP (the guaranteed maturity premium)." 

--Shane Chalke

1984 - NAIC UPDATE, Society of Actuaries

Universal Life Insurance Model Regulation (#585)

  • Guaranteed Maturity Premium (GMP)
    • "Every universal life insurance policy of which the drafters are aware has a “net level premium” that could be computed which would guarantee permanent protection."
    • As a result, it is expected that most universal life insurance policies will be sold as permanent plans."
  • Guaranteed Maturity Fund (GMF)
  • r-ratio
    • "The letter “r” is equal to one, unless the policy is a flexible premium policy and the policy value is less than the guaranteed maturity fund, in which case “r” is the ratio of the policy value to the guaranteed maturity fund." 

I’ll talk about the complications.

  • The typical policy that runs into this issue is a policy with a 3% interest guarantee where the guideline level premium requires a 4% interest guarantee.
  • Therefore, under the policy guarantees, and by paying the guideline level premium year by year, the policy will expire at age 68 without value. It’ll be term to 68.
  • Your guideline level premium is less than the premium that would be theoretically required to mature the policy at age 100 or 95.

Therein lies the problem.

  • If you were to use that interpretation, it makes the reserving calculation extremely complex.

Let me give an example. I’m going to contradict what I just said in this example.

  • The policy doesn’t really expire at age 68 because there’s a provision in 7702 that enables you to pay YRT premiums if the
    policy would otherwise lapse.

What kind of guaranteed maturity premiums do you use?

--  Edward L. Robbins

1999 Valuation Actuary Symposium - Session 44, Society of Actuaries

A regulator had told them that in that case they should not treat their universal life as though it was a whole life policy matured by paying the GMP <Guaranteed Maturity Premium>.

Rather, you should assume that people will pay the guideline level premium, and that will give you a policy that provides guaranteed coverage for something less than the whole of life.

--  Daniel J. McCarthy

1999 - Valuation Actuary Symposium, Society of Actuaries

The Guaranteed Maturity Premium is that gross annual premium which will mature the policy based on the guaranteed factors set forth in the policy.

1993-2, NAIC Proc

Life and Health Actuarial Task Force
Conference Call
August 22, 2000
2. What is the projection interest rate to be used to calculate the guaranteed maturity premium and the guaranteed maturity fund for variable universal life policies?

 

13. The Cover Page for any illustration should contain the annual premium necessary to maintain the policy to maturity based solely upon the guarantees in the policy. This will assist the policyowner in understanding the differences between guaranteed and non-guaranteed policy features. 

<NAIFA> National Association of Life Underwriters (NALU) to the NAIC Life Disclosure Working Group of the Life Insurance (A) Committee on Life Insurance Illustrations

1994-1 - NAIC Proc. 

 

MR. ROBBINS: The actual wording is, “the guaranteed maturity premium shall be that level gross premium 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.”

So it has two things that are sort of in conflict: 

  1. “Allowed to be paid” and
  2. “which will mature the policy".

MR. RAYMOND: It’s hard to tell whether “permitted under the policy” only refers to the latest maturity date or if it refers to the premiums also.

MR. MCCARTHY: As Ed pointed out, this happened before 7702.

MR. RAYMOND: Nobody thought of these things back then.

FROM THE FLOOR: I just wanted to mention that some of us, a few years ago, quit including any difference between current and guaranteed expense charges into our guideline premium calculations, I believe on your advice.

MR. MCCARTHY: I didn’t know she was going to do that.

FROM THE FLOOR: For recent issues that means that guideline premiums are always going to be less than guaranteed maturity premiums.

1999 - Valuation Actuary Symposium - Session 44, Society of Actuaries

  • [PDF-12p] - Statutory Issue Paper No. 56 - Universal Life-Type Contracts, Policyholder Dividends, and Coupons
    STATUS - Finalized March 16, 1998
    Original SSAP: SSAP No. 51; Current Authoritative Guidance: SSAP No. 51R

    • Flexible Premium Universal Life-Type Contracts
      • Alternative minimum reserves shall be required, if applicable, for flexible premium universal life-type contracts if the guaranteed maturity premium is less than the valuation net premium.