Annual Milliman Survey Reveals Significant Re-Pricing Activity for Universal Life with Secondary Guarantees
Continued Growth of Indexed Universal Life Plans and Popularity of Chronic Illness and Long-Term Care Riders are also cited
SEATTLE, May 28, 2013 /PRNewswire/ — Thirteen of the 28 participants in Milliman’s sixth annual comprehensive study of Universal Life (UL) and Indexed Universal Life (IUL) issues reported they re-priced their UL with Secondary Guarantee design in the last 12 months. The majority of survey respondents that re-priced also reported that premium rates increased on the new basis versus the old basis. Ten of these 13, plus three additional participants intend to modify their secondary guarantee products in the next 12 months. The fact that seven of these 13 survey respondents were short of their profit goals through the first nine months of 2012 may be driving such re-pricing and modification plans. Interest earnings continue to be the primary reason cited for failure to meet profit goals. Recent regulatory changes (Actuarial Guideline 38) are also driving expected modifications to secondary guarantees.
Survey participants reported sales of UL products with and without chronic illness riders. Sales of UL products with chronic illness riders as a percent of total UL sales increased from 11% for calendar year 2011 to 14% for the first nine months of 2012. Growth in the portion of sales of UL products with long term care (LTC) riders from 2011 through the first nine months of 2012 was also reported, albeit at a slower pace. As a percent of total UL sales, inclusion of LTC riders on UL products increased from 15% for 2011 to 16% for the first nine months of 2012. More companies are beginning to offer and track such products and nearly 79% of survey respondents expect to market either a chronic illness or LTC rider within 12 to 24 months.
The Milliman study, “Universal Life and Indexed Universal Life Issues”, explores issues relative to Universal Life with Secondary Guarantees (ULSG), Cash Accumulation UL, Current Assumption UL, and the corresponding indexed UL (IUL) versions.
The IUL market continues to draw considerable interest with more companies entering the market. Total IUL sales as a percent of Total UL and IUL sales combined has increased from 18% in 2009 to 40% through the first nine months of 2012. This product is attractive in today’s environment due to its upside potential and downside protection.
In addition to profitability and sales, the study also includes information on product and actuarial issues, such as target surplus, reserves, risk management, underwriting, product design, compensation, pricing, administration, and illustration testing.
Concern was expressed by 11 of 22 participants about the net premium reserve floor that is included in the valuation manual. The valuation manual sets forth regulatory requirements for principle-based reserves for UL products. The reasons for concern included: the net premium reserve is too high, the significant amount of work in implementing the new regulation with little reserve relief, and potential tax implications.
Twenty-eight carriers of Universal Life products participated in this annual survey, indicative of the great interest in this topic in the marketplace today.
The 450 page “Universal Life and Indexed Universal Life Issues – Detailed Report” is available for purchase by visiting the Milliman website at http://insight.milliman.com/article.php?cntid=8358 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 is among the world’s largest providers of actuarial and related products and services. The firm has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe. For further information, visit milliman.com.
Carl Friedrich – (312) 499-5646
Sue Saip – (312) 499-5607