The other question was much more specific and got at the same point and said that particular company
for that particular product was not allowing its customers, in the early years, to pay more than the
guideline level premium. 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. 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. What were the implications of that?

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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? For a person
issued at age 20, the YRT premium at age 70 might be greater than that GNP, for example, when the
policy would otherwise lapse.

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MR. ROBBINS: The actual wording is, “the guaranteed maturity 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: “Allowed to be paid” and “which will mature the policy

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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.

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MR. ROBBINS: What you’re saying is for guideline level premiums, you are now using current
charges, expense charts, which was absolutely correct.
MR. ROBBINS: It was, in the words of Section 7702, “reasonably expected to be imposed.”
FROM THE FLOOR: That was what brought it about. That put a whole lot of us in this position
where guideline level is going to be less than guaranteed maturity on any recently issued product.
MR. MCCARTHY: As Ed pointed out, if people are going to lower guaranteed rates, that’s going to
happen, too.
FROM THE FLOOR: Right.

 

1999 - Valuation Actuary Symposium - Session 44 - Ask the Experts