......some additional weapons may have to be added to the regulators' armory in order to produce the same degree of comfort that they have had in the past in regulating companies selling the products that were not so interest sensitive.
-- DICK <Richard> MINCK (Executive Vice-President of the American Council of Life <ACLI> Insurance and the newly elected Secretary of the Society of Actuaries)
1984 - CHANGES IN THE CANADIAN REGULATORY FRAMEWORK FOR LIFE INSURANCE, Society of Actuaries
Definition of "Interest-Sensitive Life Insurance Products"
As so worded, this portion of the charge clearly gave us the opportunity to define such a class of policies and propose
that a yield index system should apply only to policies fitting such a definition.
However, we quickly and unanimously concluded that it was neither feasible nor desirable to develop such a definition.
It is true that most of the new "non-traditional" types of life insurance which have appeared in recent years involve the
periodic declaration of an interest rate to be credited to the policy (generally on cash values) and such policies can clearly
be defined to be "interest-sensitive." But the periodic declaration of an interest rate is not crucial for the purpose of
Fo,r example, today many companies issuing traditional participating policies state that dividend scales involve reflection
of interest rates which are geared in whole or in part to the yield on new investments rather than on the company's
entire portfolio. In similar fashion, the initial pricing and repricing of many so-called "indeterminate premium" policies
also reflects current and prospective interest rates on a new money rather than a portfolio average basis.
With considerations like this in the picture today, and an accelerating pace of product change and therefore considerable
uncertainty as to how the life insurance product scene may look in even just a few years, we hope it is easy to see why
WEt concluded that it is not feasible to attempt to develop a precise definition of "interest-sensitive."
Thus, the practical application of any yield index system should embrace all contracts where significant cash values can
occur, but not contracts like term where the interest element and its effect is not important.
-- Yield Index Advisory Committee Report
Other interest-sensitive policies include variable life, adjustable life and variable premium life. In variable life policies, the assets (typically equities) underlying the policies are held in separate accounts. The death benefit changes according to investment results, subject to a minimum benefit. Adjustable life insurance allows the policyowner to switch between term life and whole protection and adjust other policy provisions. Variable premium policies vary premium levels according to what is needed to fund the policy as interest rates change.
A Regulator’s Introduction to the Insurance Industry