On March 1, 2016, the second phase of Actuarial Guideline XLIX (AG 49) takes effect, further defining — and refining —
indexed universal life (IUL) illustration practices.
Back in August, I reviewed the first phase of
AG 49, which brought consistency in illustrated
crediting rates. As of March 1, even more changes
will be required to help level the playing field
among illustrations and provide greater transpar-
ency for customers.
First and most noticeable will be the inclusion
of an additional set of projected policy values.
Currently, illustrations are required to project
values on both a guaranteed and a nonguaranteed basis. AG 49 requires an additional set of
nonguaranteed projected values using a specified
interest rate, frequently the declared rate for the
policy’s fixed account. Illustrated values at two
different nonguaranteed interest rates will help
increase consumer understanding of the effect of
nonguaranteed interest rates on their policies.
Second, a table of hypothetical indexed interest
crediting rates will be required. The policy’s current
nonguaranteed rate, such as the cap, will be
applied historically to actual index performance
within the table. The resulting hypothetical
indexed interest crediting rate will be displayed.
A second new table will also be required that lists
additional hypothetical historical interest rates.
Both of these tables are additional tools to help
explain the potential variability of the product’s
AG 49’s second phase also focuses on policy
loan illustrations, which reflect both an interest
rate charged, as well as an interest rate credited,
on loaned values. One or both of these inter-
est rates may be nonguaranteed. On some IUL
policies today, loaned funds earn indexed interest
credits. Regulators sought to restrict the potential
variability this introduces to rates charged and
credited on loaned funds within illustrated values.
For sales on and after March 1, 2016,
illustrating this type of loan:
» Within the current nonguaranteed values,
the difference between the rate credited on
loaned funds and the rate charged will be
limited to no more than 100bps.
» Under the new, additional set of nonguaranteed values, the rate credited on loaned funds
cannot exceed the rate charged at all.
Companies will need to adjust the rate credited
on loaned funds and/or the rate charged within
the illustration. These changes may result in
illustrated rates differing from actual policy
provisions, so care should be taken to understand
the impact of this requirement.
As the industry moves forward, the changes
of AG 49 will go a long way in helping to demonstrate how IUL policies operate. The industry
should consider adopting the changes as best
practices across other products with similar loan
features, such as whole life. Change, though, is
rarely easy, and IUL carriers are being forced to
look at things differently as they revisit some
long-standing practices. In the end, though, the
changes will bring greater clarity and understanding to the IUL marketplace. RA
Tom Doruska, FSA, MAAA,
is Vice President, Life Products at
Accordia Life and Annuity, and
Chair of the ACLI’s IUL task force.
Phase two targets projected values, policy loans
>>> In favor of AG 49
By Tom Doruska
LifeHealthPro.com | April 2016 | Retirement Advisor 31