NonGuaranteed Elements

Up until recently, this has been a satisfactory approach since dividends were essentially the only non-guaranteed element in the
marketplace.

This is no longer true and the Equivalent Level Annual Dividend needs to be replaced by a non-guaranteed element.

The Non-Guaranteed Element would be the difference between the cost index on the highest possible cost basis and the cost index on the currently illustrated non-guaranteed basis.

For most plans, the Non-Guaranteed Element for the surrender cost index and the payment cost index would be the same.

However, this is not always true.

When the elements are not the same, a separate element should be calculated for each cost index.

Suggestive modifications of cost indexes for various products are as
follows :

1981, INDIVIDUAL LIFE INSURANCE COST DISCLOSURE ISSUES, Society of Actuaries

Section 4.  Definitions

D. “Nonguaranteed elements” means the premiums, credited interest rates (including any bonus), benefits, values, non-interest based credits, charges or elements of formulas used to determine any of these, that are
subject to company discretion and are not guaranteed at issue.

An element is considered non-guaranteed if any of the underlying non-guaranteed elements are used in its calculation.

NAIC – LIFE INSURANCE DISCLOSURE MODEL REGULATION

Actuarial Standard of Practice No. 2
Nonguaranteed Charges or Benefits for Life Insurance Policies and Annuity Contracts

Actuarial Standards Board

Richard Minck (American Council of Life Insurance — ACLI) …. suggested having examples of what illustrations would look like with past performance and future guarantees to see if this was what the working group intended.

He said the most striking change in life insurance in past years was in the non-guaranteed elements.

1994-1

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.” MR. KEVIN A. MARTi

1995 – PRACTICAL ILUSTRATIONS AND NONFORFEITURE VALUES, Society of Actuaries – 14p

Actuarial

“The accuracy of these projections depends, among other factors, on how well the assumptions and estimates represent actual experience in the future.”   page 9, Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition, Claire, Lombardi and Summers

William Albus (National Association of Life Underwriters — NALU)
Mr. Albus said there was a need to illustrate non-guaranteed elements, but consumers must understand that they are not guaranteed.

He thought it was a good idea to tighten up the parameters of assumptions.

He said his group was working on the concept of a sensitivity index to allow consumers to see what would happen when assumptions changed to a small degree.

1993-3

1994 – THE DRIVING FORCES BEHIND PARTICIPATING -UNIVERSAL LIFE
(UL) – NONGUARANTEED ELEMENT PRODUCT DEVELOPMENT, Society of Actuaries

The difference in these two indexes would be the Non-Guaranteed Element.  WILLIAM T. TOZER

1981, INDIVIDUAL LIFE INSURANCE COST DISCLOSURE ISSUES, Society of Actuaries

The thrust of this development says the deal needs to be articulated.

This deal has several components, and one is with respect to premiums. If they are not guaranteed or fixed, there needs to be an understanding of how they can vary.  –Walter S. Rugland:

1996 – Nonforfeiture Law Developments, Society of Actuaries – 23p

THEN

Technical resource advisors <Industry Advisory Group> pointed out that vanishing premium illustrations should include an explanation that premiums only vanish if assumptions reflected in the illustration continue unchanged into the future. The advisors did not favor
disclosure of the assumptions underlying policy performance because they were so complex. They were concerned about being able to explain, in an understandable way, the multitude of assumptions with a bearing on policy performance.
1993-1, NAIC Proceedings “Jack Turnquist (Actuarial Standards Board) said his organization had held a public hearing in March because of concern about abuses in illustrations and concerns about how non-guaranteed elements were being illustrated.”
1993-4, NAIC Proceedings
 “He <Richard Minck, ACLI> said the most striking change in life insurance in past years was in the non-guaranteed elements.” 
1994-1, NAIC Proceedings

NOW

Actuarial

“The accuracy of these projections depends, among other factors, on how well the assumptions and estimates represent actual experience in the future.”   page 9, Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition, Claire, Lombardi and Summers

1996-3V2 p931 

Report of the Cost Indices Subgroup of the Life Disclosure (A) Working Group

“The group first considered a suggestion from Chris Kite (FIPSCO) for a new type of index that would allow consumers to compare the assumptions in the illustration.”

————

“Brenda  Cude (Cooperative Extension  Service)  opined  that  the  target  audience  does  not care about  assumptions.”

2017-3V1 

Life Insurance Buyer’s Guide (A) Working Group

American Academy of Actuaries  –  “Because NGEs <Non-Guaranteed Elements> are likely to change, the ongoing performance of products with NGEs should be reviewed periodically after purchase to assess the impact of any NGE changes and consider actions that policyholders may wish to take (e.g., adjust premium payments or death benefits).”

———–

“Brenda Cude (University of Georgia) said the issue of NGEs is interesting, but not something the average consumer would understand.  She did not think it was information that was appropriate for a short guide for first-time purchasers.”

“Tony Higgins (N.C.) asked the working group to consider projections into the future for only a few years of the non-guaranteed elements, and then projections further into the future of standardized assumptions or guarantees.

 

Mr. Wright said this allows a company to show how its policy works without the problem of projections of non-guaranteed elements far into the future.

Lester Dunlap (La.) – He said projections far into the future can border on misrepresentation.”  1994-3 NAIC

Non-Guaranteed Elements

  1. Actuarial
  1. Government
  1. Industry
    • ACLI
      • “In addition, the Subcommittee [ACLI Subcommittee on Cost Comparisons] is recommending disclosure for Universal Life plans in accordance with the “non-guaranteed cost element” concept endorsed by the Council as a modification to the model regulation. The only special requirement recommended for Universal Life plans is that the Policy Summary indicate when the plan will terminate based on guaranteed assumptions.” 1981, “Universal Life,” 1981, Society of Actuaries
      • “The most obvious is if we fail policyholder expectations, we may have policyholder suits.”  — LARRY R. ROBINSON (Chairman of the ACLI Subcommittee on Cost Comparisons)
      • “He <Richard Minck – ACLI) said the most striking change in life insurance in past years was in the non-guaranteed elements.” 1994-1 NAIC
  1. Law
  2. NAIC Proceedings
    • 1994-3
      • “Commissioner Wilcox also spoke favorably of a new provision in California where the illustration of non-guaranteed elements must show the lesser of the amount being currently paid, the amount the company is currently earning, or the amount the company can expect to earn.”
      • “4. Discussion of Model Limited to Illustration of Guarantees and Past Performance”
      • Assumptions.
        • Non-guaranteed elements will be based on separate assumptions for interest, mortality, lapse and expenses that are each not greater than the most conservative of:
  1. The rate reflected in the current credited scale;
  2. The most recent experience on the policy block; and
  3. The rate that can reasonably be expected on the policy block.

“Mr. Gorski <Regulator> :  They are complaints about things that we can’t do anything about because the contract might be a Universal Life type product with Nonguaranteed Elements, and there is no regulatory framework to deal with those issues. Those complaints just fall by the wayside because there is nothing that can be done. I think that the bottom-line suggestion is that nonguaranteed elements should be regulated (and I am using the word “regulated” in a very general sense) through this plan approach.”  

 

  1. Other
    • Google Search Results – About 76 results

REALLY OLD

1877 – The International Review: Volume 4

“The rate of interest at which the company computes that its funds will accumulate is not the current rate in the community, but a rate so low that it can be surely obtained as a minimum for generations to come. 

But the probabilities in any case are very great that, with good management, the mortality will be indefinitely less, the expenses less, and the interest greater than the estimates. The probability that all these margins will be lost, under such management, is inconceivably small.”

Documents

NY

New York Reg.210 Non-Guaranteed Elementsrf210txt

 

Texas

TEXAS house-insurance-COI-04122018

https://www.tdi.texas.gov/reports/documents/house-insurance-COI-04122018.pdf

1988

SOA

ACTUARIAL OPINION ON NON-GUARANTEED ELEMENTS, 12p

ACLI- Larry Robinson

AAA – William Tozer

1978-2 – Life Insurance (Policy Lapsation (C3) Advisory Committee

1951 – LAPSE RATES – Society of Actuaries – CHARLES F. B. RICHARDSON, JOHN M. HARTWELL