4/15 NAIC Illustration Rate Rules

This is the information I received 4/15 from a senior analyst with one of the IUL Companies:

With new IUL illustration regulations coming into play, everyone will be using the same formula starting in September 2015.  Average of 25 year gains going back 65 years calculated daily.

They will be using the past 10,000 25 year periods (every single trading day).  Example 1/2/1950 to 1/2/1975, 1/3/1950 to 1/3/1975, 1/4/1950 to 1/4/1975….   Find the geometric average return for each 25 year period.  Then average all those 25 year periods together to get an illustrated rate.

The main limitation would be that everyone follows the same look back.  That methodology will bring everyone’s rates down.  There is a secondary cap of the methodology in part 5 of the proposed rule where rates can’t exceed 145% of net annual investment earnings of the general account supporting the policy.  It’s possible that some companies will be limited by that 145% limit, but likely not too many.  Those with the lowest portfolio rates and fairly high caps may not be able to illustrate the full look back.

Variable loan rules go in effect March 2016 and are stated simply: “If the illustration includes a loan, the illustrated rate credited to the loan balance shall not exceed the illustrated loan charge by more than 100 basis points.”

What they will likely do is to adjust the software so any funds that are backed by variable (or participating) loans will get a lower rate.  And of course that’s only for the illustration – not real life.

For example, if a loan is fixed at 5% participating (Allianz for example), and they were illustrating their index at 7%, their non-loaned values could still illustrate at 7%, but their values backing the loan would be illustrated at 6%.

For what the new Illustration Rates could be see “Average 20 Yr Gain”:


Also see:


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