1983-2

a. Review Effect of Rapidly Declining Interest Rates on Dynamic Interest Formula
This has been suggested as a possible future topic for the group. No work is to be done unless and until specific
authority is received from the (A) Committee. If such work is authorized, the group would make a detailed study
of how a rapidly declining interest rate scenario would affect the dynamic interest rates defined in the December
1980 amendments to the standard valuation law and the standard nonforfeiture law for life insurance. This study
would be especially concerned with the adequacy of reserves on new life insurance and annuity business, and with
the appropriateness of the minimum cash values and other nonforfeiture benefits defined for new life insurance
business. The study would also endeavor to include recommendations to correct or at least reduce the effect of any
problems that were disclosed. This would be a new topic for the group, and it has not been mentioned in the Winter
1982 report of the group or in any earlier reports. Attachment Two-M is a further summary of this project prepared
by William A. White of the New Jersey department. Proposed Actuarial Guideline
Recommended to the Life Insurance (A) Committee
June 1983
INTERPRETATION REGARDING VALUATION AND NONFORFEITURE
IN f EREST RATES 3. Report from the Technical Actuarial Group
Ted Becker reported for the group. He said that his group has two topics on its current
agenda, which relate to the work of the task force. The group met in March, 1983 in San
Francisco, and again here in St. Louis on June 11 and 12, 1983.
With respect to universal life, Mr. Becker reported that the technical actuarial group saw the
exposure draft prepared by Jim Jackson’s advisory committee for the first time on June 12,
1983. The provisions on reserves and cash values were largely developed from work done by
an American Council of Life Insurance (ACLI) task force, chaired by William Tozer of
Kentucky Central Life. One matter on which the group had questions was in the calculation
of maximum expense allowances to be used in calculating cash values. The group felt it
might be too high in some cases. The ACLI task force was asked to reconsider this expense
allowance and either prepare a written justification or else a proposed revision. There were
also other questions raised at the meeting of the group, Mr. Becker reported, some of which
were mentioned by Jim Jackson. Others were whether companies should contractually
limit the right of the policyholder to pay additional premiums and whether there should be
more disclosure of the termination date under guaranteed minimum assumptions. Mr.
Becker said that he understands that further research is to be done by either Jim Jackson’s
committee or the ACLI task force on the various points listed by his group. Attached, please find a complete copy of the first “exposure draft” of the model regulation on universal life insurance.
This text is the result of efforts by various task force members, advisory committee members and other participants.
Although all persons involved in the drafting are not entirely satisfied with the current text, the present version will
hopefully provide a basis for comments and suggestions which the advisory committee actively solicits at this time.
Specific areas regarding which the advisory committee requests consideration include:
1. Definitions
2. Nonforfeiture and Valuation
[The latest ACLI text (May 1983) on these subjects has been adopted, with minor changes.]
3. Advertising and Solicitation
4. Interest-Indexed Plans
James M. Jackson
Chairman, Advisory Committee The committee then heard the reports of each of the subgroups assigned to consider specific areas of the model regulation.
Mr. Spano discussed the work by the Disclosure, Advertising and Solicitation Subgroup. The subgroup recommended
utilizing existing model regulations on advertising and on solicitation.
The subgroup determined that there may be certain areas of advertising, solicitation, and disclosure peculiar to universal
life insurance which were not adequately addressed by existing model regulations including:
1. Consideration of income tax consequences of universal life insurance to the policy owner and/or beneficiary
2. Appropriate disclosure of guaranteed costs and interest credits along with illustrated costs and interest credits
3. Withdrawal or surrender charges
4. “Front-end” and subsequent loads
5. Disclosure of assumptions used in advertising and solicitations
These issues will receive further specific consideration from the subgroup and the advisory committee.
It was noted that to the extent universal life policies differ from the traditional life insurance policies, these differences
should be addressed by the model regulation. To the extent the existing model regulations are applicable to universal
life insurance, a discussion ensued as to how best to refer to or adopt such other regulations in the current proposal. Ms.
DuMond suggested referring to those other model regulations in the drafting comments. The chairman agreed, noting the
use of drafting comments as an educational vehicle. UNIVERSAL AND OTHER NEW PLANS ADVISORY COMMITTEE – DEFINITION SUBGROUP
Reports heard by task force 627,
634
Appointed 634
UNIVERSAL AND OTHER NEW PLANS ADVISORY COMMITTEE – DISCLOSURE, ADVERTISING
AND SOLICITATION SUBGROUP
Report heard by task force 627
Appointed 634
UNIVERSAL AND OTHER NEW PLANS ADVISORY COMMITTEE – FILING AND MANDATORY/
PROHIBITED POLICY PROVISIONS SUBGROUP
Report heard by task force 627
Appointed 634
UNIVERSAL AND OTHER NEW PLANS ADVISORY COMMITTEE – INTEREST-INDEXED
PLANS AND OTHER SOLVENCY PROVISIONS SUBGROUP
Report heard by task force 628
Appointed 634
890 NAIC Proceedings – 1983 Vol. II
UNIVERSAL AND OTHER NEW PLANS ADVISORY COMMITTEE – NONFORFEITURE AND VALUATION
SUBGROUP
Report heard by task force 628
Appointed 634
UNIVERSAL AND OTHER NEW PLANS ADVISORY COMMITTEE – PERIODIC REPORTS
TO POLICYHOLDERS SUBGROUP
Report heard by task force 628
Appointed 634