Problem - Interest Rate Assumptions

  • We believe current illustrated rates are much higher than what is reasonably expected over the course of the policy and may lead to consumer disappointment, which could negatively impact the entire industry.

--  Metropolitan Life Insurance Company, New York Life Insurance Company and Northwestern Mutual Life Insurance Company

2014 0812 - Letter to NAIC LATF - IULISG – Indexed Universal Life Illustrations Subgroup – NAIC

  • What I'm thinking about in particular is, Universal Life companies, back in the early 1980s, were illustrating interest rates that we all knew were not realistic long-term." 

--  Kevin A. Marti

1995 - SOA - Practical Illustrations and Nonforfeiture Values, Society of Actuaries - 14p

  • Linda S. Streck: I think the response from the NAIC to the illustration issue is somewhat of a hard hammer for all of us.
    • In a session at this meeting, Dick Weber, who is now with Merrill Lynch, made the comment that, when we made illustrations available to the agents, that was when we, as actuaries, lost control of the product development function.

1994 - SOA - The Driving Forces Behind Participating/Universal (UL) / NonGuaranteed Element Product. Society of Actuaries - 12p 

  • 1906
  • 1957
  • 1991
  • 1992
  • 1993
  • 1994
  • 1995
  • 2014
  • 2020
  • Senator Bob Hackett (R-OH) - stated that one of the problems that the life insurance industry has been experiencing for several years is that when universal life was sold years ago interest rates were so much higher and these policies are really going to blow up much earlier.  (p165)

2020 - NCOIL - 30 Day Materials and Tentative General Schedule NCOIL Annual Meeting December  9 - 12, 2020 - 200p

  • The New York Life promised:
    • ... on a 20 year endowment $1,650 and paid $710;
    • ... on a 20 year deferred dividend $1,143 and paid $527;
    • ... on a tontine it estimated $1,234 and paid $564;
    • ... on another $954 and paid $390.
  • As anyone reading the policy forms will note, these estimates are not part of the contract which provides that the policyholder is entitled to only what dividends or investment profits the officials of the company choose to apportion to him.
    • The promise is made by the agent in separate printed estimates which purport to be the experience of other policyholders and which the prospective policyholder is assured will be equaled in his case.
    • Whether or not the statements are true in regard to the returns some policyholders have received, there is no question that they do not come true in nine cases out of ten.

1906 - Book - How to Buy Life Insurance, by QP

⇒   [Bonk: Anyone know who the Author is? My guess is Miles Menander Dawson]

  • P. Randall Lowery:  I've always been of the opinion that most of the problems related to the interest rates and to the agent projecting different rates.

1992 - SOA - Life Insurance Sales Illustrations, Society of Actuaries - 16p

  • One problem area in a lot of policies has been interest rates.
    • A slow cumulative, very large decline in interest rates has affected everything.
  • Why are we getting so many complaints?
    • Did the policyholder expect rates to stay the same forever?
    • Did the agent or the company mislead?
    • Did the policyholder think we were promising?
      • He shouldn't have, I hope he didn't.

--  Bruce E. Booker, Life of Virginia, a member of the American Council of Life Insurance (ACLI) Task Force on Cost Disclosure and the National Association of Insurance Commissioners (NAIC) Advisory Group on Illustrations

1993 - SOA - Sales Illustrations - We Can't Life With Them, But We Can't Live Without Them!, Society of Actuaries - 20p

  • (Northwestern Mutual Life: A Century of Trusteeship by Harold F. Williamson and Orange A. Smalley, Northwestern University Press, ©1957,
    • It goes on: "Even the more modest claims for this type of policy proved to be misleading because of two trends... : one was the increasing life expectancy in the United States, the other the continued fall in the rate of interest ....
    • [O]ver longer intervals survivors ultimately collected much smaller dividends than they had been led to expect." (op. cit.)

This sounds eerily like the situation today.

--  William C. Koenig

1991 - SOA - Disclosure Systems: Can an Ideal Method be Found?, Society of Actuaries - 22p