Tag Archives: Carl Friedrich

Annual Milliman survey reveals gradual shifting from full underwriting of UL/IUL products to simplified issue and accelerated underwriting approaches

Milliman today announced the results of its annual comprehensive study of universal life (UL) and indexed universal life (IUL) issues, which for the first time includes the reporting of sales by underwriting approach. The 11th annual Milliman study, “Universal Life and Indexed Universal Life Issues”, focuses on current topics relative to universal life with secondary guarantees (ULSG), cash accumulation UL, current assumption UL, and the corresponding indexed UL (IUL) versions.

This year’s report found that, between January 1, 2017 and September 30, 2017, the distribution of UL sales (on a premium basis) by underwriting approach was 29.8% simplified issue, 1.1% accelerated underwritten, and 69.2% fully underwritten. Comparing calendar year 2016 to the first three quarters of 2017, there was a 2.5% shift from fully underwritten sales to simplified issue and accelerated underwritten sales.

Similarly, between January 1, 2017 and September 30, 2017, the distribution of IUL sales by underwriting approach was 2.6% simplified issue, 16.8% accelerated underwritten, and 80.6% fully underwritten. Comparing sales in calendar year 2016 to the first three quarters of 2017, there was a 16.2% shift from fully underwritten sales to accelerated underwritten sales.

The life insurance industry has been moving away from full underwriting of life products to simplified approaches with fewer or different requirements and more timely responses, while still considering the implications of mortality cost. Nineteen of the 29 respondents reported using more than one underwriting approach. Of the 29, simplified issue underwriting is being used by nine participants, accelerated underwriting by 12 participants, and full underwriting by 28 participants. Eleven additional participants reported they will or may implement accelerated underwriting programs in the future.

“Carriers are focusing on improving the life underwriting process with the use of new technology, such as predictive analytics, the reduction of underwriting costs, and the shortening of the approval process. These improvements are possible when using an accelerated underwriting approach, which likely explains some of the shift we’re seeing,” says Sue Saip, consultant in Milliman’s Chicago office.

In addition to underwriting information, the survey also indicates that sales of chronic illness riders and long-term care riders on UL/IUL policies continue to grow. During the first three quarters of 2017, sales of chronic illness riders as a percent of total sales were 8.7% for UL products and 38.5% for IUL products. During the same period, sales of policies with long-term care (LTC) riders as a percent of total sales (by premium) were 33.2% for UL products and 10.9% for IUL products. Within 24 months, 83% of survey participants possibly will market either an LTC or chronic illness rider.

The 404 page “Universal Life and Indexed Universal Life Issues – Detailed Report” also includes detailed information on product and actuarial issues, such as sales, profit measures, target surplus, reserves, risk management, underwriting, product design, compensation, pricing, and illustrations.

The report is available for purchase here or by calling Gina Ritchie at (312) 499-5605.

New Milliman survey reveals 33 out of 40 companies use or plan to use accelerated underwriting in term life insurance

Milliman recently released the results of a new broad-based survey on term life insurance, capturing historical data for key industry competitors as well as company perspectives on a range of issues pertaining to these products into the future. The Term Life Insurance Issues report is based on a survey of 40 term insurance companies. It includes detailed information on underwriting trends and other product and actuarial issues such as sales from calendar years 2013 to 2016, profit measures, target surplus, reserves, risk management, product design, compensation, and pricing.

Key findings of the study include:

• The bulk of term sales are non-return of premium (ROP) term (96% of total term sales). This percentage was fairly stable over the survey period.
• The predominant profit measure relative to the pricing of new term products is an after-tax, after-capital statutory return on investment/internal rate of return (ROI/IRR). The average ROI/IRR target reported by survey participants was 8.9% for ROP term products and 9.9% for non-ROP term.
• Of the survey participants planning to implement principle-based reserves, 20 are planning implementations spread over the allowed three-year phase-in period. Similarly, 14 participants plan to implement the 2017 Commissioner’s Standard Ordinary (CSO) mortality table over the three-year period allowed. Twelve participants intended to implement the 2017 CSO in calendar year 2017.
• Currently, 17 of the 40 survey participants use accelerated underwriting programs for term life insurance, with an additional 16 participants planning to implement such programs.
• Scoring models are being used by 18 of the 40 participants to underwrite their term policies: nine use purely external scoring models, five additional participants use purely internal scoring models, and the remaining four use both internal and external models. The majority (13) of these participants are using scoring models with their accelerated underwriting programs, with the remaining five using them with other underwriting approaches.

“Carriers are currently dealing with major regulatory actions, and emerging innovations in life underwriting. These recent changes are disrupting the term life insurance market in ways that haven’t been seen for some time,” says Sue Saip, consultant in Milliman’s Chicago office.

The 295 page “Term life insurance issues – Detailed Report” is available for purchase by visiting the Milliman website or by calling Gina Ritchie at (312) 499-5605. Participating companies receive a complimentary copy of the detailed report, as well as individual company responses reported on an anonymous basis.

Annual Milliman survey reveals a staged approach in implementing recent regulatory changes for UL/IUL products

Results from participants in Milliman’s annual comprehensive study of universal life (UL) and indexed universal life (IUL) issues indicate a staggered approach in implementing recent regulatory changes. Principle-based reserves (PBR) may be implemented as early as January 1, 2017, and 27 survey participants reported they expect to implement PBR for all of their UL/IUL products spread over the three-year phase-in period allowed. Resource issues, time needed, financial impact/cost/benefits, clarification and finalization of PBR and Internal Revenue Service (IRS) regulations, and PBR implementation of other products first were cited as factors impacting the rationale for implementation plans.

Similarly, the earliest effective date for the use of the 2017 Commissioner’s Standard Ordinary (CSO) mortality table was January 1, 2017. The 2017 CSO is the new valuation mortality table to be used in the determination of the Commissioner’s Reserve Valuation Method (CRVM), net premium reserves, tax reserves, nonforfeiture values, etc. Twenty-two survey participants reported that they would implement this table for all of their UL/IUL products spread over the three-year phase-in period allowed. Ten participants reported implementation of the 2017 CSO would be product-dependent; implementation will be immediate for some products and over the three-year phase-in period for others.

“It’s not surprising that these regulatory changes are not being implemented immediately, given the complexity of the regulations, the potential impact on pricing and the bottom line, and the strain on resources, especially for smaller carriers,” says Sue Saip, consultant in Milliman’s Chicago office.

The 10th annual Milliman study, “Universal Life and Indexed Universal Life Issues,” focuses on current topics relative to universal life with secondary guarantees (ULSG), cash accumulation UL, current assumption UL, and the corresponding indexed UL (IUL) versions. Thirty-two carriers of universal life and indexed universal life products participated in this annual survey.

In addition to PBR and the 2017 CSO information, the survey also indicates that the use of new underwriting approaches is gradually gaining popularity. Scoring models are being used by 11 survey participants to underwrite their UL/IUL policies. Eight of the 11 use these models for fully underwritten policies, one uses them for simplified issue policies, and the final two use them for both fully underwritten and simplified issue business. Eight participants reported using scoring models with automated rules. The types of scoring models used include lab scoring models, credit scoring models, and scoring models relative to motor vehicle records. The survey also revealed that 10 of the 32 participants utilize fluid-less underwriting programs at face amounts where they previously would require fluids.

The study includes detailed information on product and actuarial issues, such as sales, profit measures, target surplus, reserves, risk management, underwriting, product design, compensation, pricing, and illustrations.

The “Universal Life and Indexed Universal Life Issues – Detailed Report” is available for purchase here or by calling Gina Ritchie at (312) 499-5605.

Milliman survey reveals reactions to UL/IUL regulatory changes

Milliman today released new results from participants in its annual comprehensive study of universal life (UL) and indexed universal life (IUL) issues, namely, the reaction of issuers of universal life products to recent and upcoming regulatory changes. Principle-based reserves (PBR) will be effective January 1, 2017, and nine survey participants reported they anticipate implementing PBR immediately. Nineteen expect phasing-in the implementation of PBR over the three-year phase-in period allowed. Factors impacting the rationale for participants’ implementation plans include resource issues, the impact on reserves and capital, the need for preparation and research, and competitive reasons. Fifteen participants do not know what approach they will use for pricing new UL/IUL products in a PBR environment for products that require one of the VM-20 reserve components (VM-20 includes valuation manual minimum requirements for PBR for life insurance products).

On September 1, 2015, sections 4 and 5 of Actuarial Guideline 49 (AG 49) became effective, impacting issuers of IUL contracts. These sections of AG 49 provided guidance regarding the determination of the maximum indexed crediting rate that may be used with IUL illustrations. The survey included 22 IUL participants and the majority (19) reported they had made adjustments to illustrations based on AG 49, but few participants had made changes to their product designs because of AG 49. Eighteen of the 22 IUL participants reported the rate that was calculated for the Benchmark Index Account per Section 4A of AG 49. The rates ranged from 5.02% to 7.77% with a median of 6.87% and an average of 6.72%. This was also the range reported for the rate typically illustrated by reps in IUL illustrations for participants’ most popular strategies. The median illustrated rate was 6.70% and average was 6.59%. This compares with the median illustrated rate one year ago of 7.50%, and average of 7.10%. Twenty of the 22 participants reported the illustrated rate decreased relative to the rate one year prior.

The ninth annual Milliman study, “Universal Life and Indexed Universal Life Issues,” focuses on current topics relative to universal life with secondary guarantees (ULSG), cash accumulation UL, current assumption UL, and the corresponding indexed UL (IUL) versions. A new high of 35 carriers of universal life and indexed universal life products participated in this annual survey.

In addition to PBR and AG 49 information, the survey also indicates that the popularity of IUL products generally and UL/IUL products with living benefits has continued, consistent with the past several years. IUL sales during YTD 9/30/15 accounted for 51% of total UL/IUL sales combined (reported by survey participants) during YTD 9/30/15, increasing from 37% in 2012. During YTD 9/30/15, sales of chronic illness riders as a percentage of total sales were 23% of UL products and 41% for IUL products, at or near peak levels. Despite a shift away from single premium business to limited pay business for sales of UL/IUL with long-term care (LTC) riders, during YTD 9/30/15 sales of LTC riders as a percentage of total sales by premium were 19.2% for UL products and 9.4% for IUL products, both at peak levels.

The study includes detailed information on product and actuarial issues, such as sales, target surplus, reserves, risk management, underwriting, product design, compensation, pricing, administration, and illustrations.

The 444-page “Universal Life and Indexed Universal Life Issues – Detailed Report” is available for purchase by visiting the Milliman website or by calling Gina Ritchie at (312) 499-5605. Participating companies receive a complimentary copy of the detailed report, as well as individual company responses reported on an anonymous basis.

Milliman survey indicates past trends continue: Life insurers focus on living benefit riders and indexed universal life

The popularity of indexed universal life (IUL) products has increased over the last few years, as reported by participants in Milliman’s annual comprehensive study of universal life (UL) and IUL issues. Total IUL sales as a percent of total UL and IUL sales combined for survey participants increased from 25% in 2011 to 45% during the first nine months of 2014. During this period, cash accumulation IUL sales comprised 82% of total cash accumulation UL/IUL sales, and current assumption IUL sales comprised 17% of total current assumption UL/IUL sales. Overall survey statistics suggest that companies plan to focus more on cash accumulation IUL and current assumption IUL products, and less on universal life with secondary guarantees (ULSG). Five of the 29 survey participants reported discontinued sales of ULSG products.

During the first nine months of 2014, sales of chronic illness riders as a percent of total sales were 17% for UL products and 45% for IUL products. Similarly, during the first nine months of 2014, sales of long-term care (LTC) riders as a percent of total sales were 18% for UL products and 9% for IUL products. Nearly 86% of survey respondents expect to market either an LTC or chronic illness rider within the next 24 months.

The eighth annual Milliman study, “Universal Life and Indexed Universal Life Issues,” focuses on issues relative to universal life with secondary guarantees (ULSG), cash accumulation UL, current assumption UL, and the corresponding indexed UL (IUL) versions. Twenty-nine carriers of universal life and indexed universal life products participated in this annual survey.

In addition to sales information, the study also includes detailed information on product and actuarial issues, such as target surplus, reserves, risk management, underwriting, product design, compensation, pricing, administration, and illustrations.

The 344-page “Universal Life and Indexed Universal Life Issues – Detailed Report” is available for purchase by visiting the Milliman website or by calling Gina Ritchie at (312) 499-5605. Participating companies receive a complimentary copy of the detailed report. Individual company responses are reported on an anonymous basis.

Adoption of long-term care combination plans is growing

Carl Friedrich assesses the rise in popularity of life/annuity long-term care combination products in the September issue of The Four Pillars Newsletter, published by The Geneva Association.

Here is an excerpt from the article:

Combination plans provide an attractive solution to these issues. These plans feature accelerated payment of life or annuity benefits to cover LTC costs. One benefit of combination plans is that they provide a cash value even if LTC is not required, which is appealing to consumers. In the first phase of the LTC benefits, combination LTC plans function as a form of self-insurance. With combination annuities, the LTC benefit is paid on a monthly basis from the cash value of the contract. With combination life insurance plans, the LTC benefit is provided as a monthly prepayment of death proceeds and cash values. After the contract value is spent down to zero, ongoing monthly LTC benefits are continued under the second phase of the benefit per terms of the rider, supported by the assets of the insurance company. The cost of LTC is lower for buyers because of the self-insurance aspect of the first phase of LTC benefits.

Annuity combination products have an additional advantage. The Pension Protection Act of 2006 qualifies integrated LTC benefits as tax-free, even if the benefits are paid from account values of the annuity. This law became effective 1 January 2010. If the proceeds of an annuity are paid as qualified LTC benefits, an insured can receive the full account value tax-free even if the account value included what would normally have been taxable gains in the contract. Combined with LTC coverage that extends past the exhaustion of the annuity, combination products can enable annuity owners to realize double or triple the annuity’s face account value.

For annuity providers, combination annuities provide pricing synergies. LTC riders tend to reduce lapse rates, and lower lapse rates increase annuity earnings. This offsets the lapse-supported nature of LTC plans. LTC riders help insurers hedge against lapses in annuities that typically spike immediately after the end of the surrender-charge period. Insurers offering life combination products also benefit from the natural “hedging” effects of these plans. Higher-than-anticipated mortality hurts life insurance profitability because of the need to pay death benefits earlier, but such mortality shifts positively impact LTC profitability because they reduce the liability for LTC benefits.

The potential market for combination products is significant. If 1 per cent of the 95 million Americans between 45 and 70 invested US$50,000 in a combination LTC-annuity product, that would represent US$47.5 billion. A 3 percent penetration rate with an investment of US$100,000 would be US$285 billion. Considering the US$750 billion invested in non-qualified annuities, these estimates look less outlandish.

A copy of the article can be downloaded here.