timothy c. pfeifer, fsa, maaa pfeifer advisory llc october 15, 2012
TRANSCRIPT
Timothy C. Pfeifer, FSA, MAAAPfeifer Advisory LLC October 15, 2012
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The Question to be Addressed
Over the next five to ten years, what will be the landscape for universal life products which
are structured to build attractive cash accumulation
values or provide income benefits rather than focus on
death benefit protection?
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• Declared Rate Accumulation Universal Life
• Indexed Universal Life
• Variable Universal Life
• Interest Indexed Universal Life
• Survivorship Universal Life
• Guaranteed Lifetime Income Features
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Interest Rate Levels
Interest Rate Levels
DemographicsDemographics
Securities/StateRegulation
Securities/StateRegulation
Overall EconomyOverall Economy
Equity Market Volatility
Equity Market Volatility
Shape of Yield Curve
Shape of Yield Curve
Federal Tax Changes/Rules
Federal Tax Changes/Rules
Industry CapitalIndustry Capital
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Little story as long as medium-long interest rates are so low.
The minimum needed rise in market rates to energize story is at least 200bps, and even that is probably insufficient.
Heavy persistency bonuses and reverse select and ultimate COIs and expense loads can sweeten story, but products may become very lapse supported.
Over the next five years, carriers who credit interest under a portfolio strategy have the greatest chance of success
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Showcase for next 5-10 yearsShowcase for next 5-10 years
Greater demands on product–accumulation, death protection, income
Greater demands on product–accumulation, death protection, income
Increase in participating carriers–to virtually all
Increase in participating carriers–to virtually all
Some registered versions of productSome registered versions of product
Market share of Universal Life sales 40%Market share of Universal Life sales 40%
Level of interest rates determines breadth of indices
Level of interest rates determines breadth of indices
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Market will still be Market will still be dominated by a half-dozen dominated by a half-dozen
companies with captive companies with captive distributiondistribution
B/Ds, Banks, and B/Ds, Banks, and Wirehouses will continue Wirehouses will continue
turn to Indexed ULturn to Indexed UL
Only Hope for Greater VUL Penetration
•Embrace Guaranteed Benefits, which can be done given profit sources
•Leverage exemptions from AG38, illustration regs
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Premise: Promise rising credited
rates if rates rise
Credited rate can be linked to external
index like Treasury rates or Bond index
Other policy components (e.g.,
death benefit) can be linked to rate movements
Market hedging needed to lock-in
liabilities
Addresses anti-selective lapses
if rates rise
Product is virtually non-existent today
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Generally not thought of as an accumulation product, but rather as a protection oriented estate planning vehicle
Generally not thought of as an accumulation product, but rather as a protection oriented estate planning vehicle
But…
Can be a very efficient tax-deferred cash accumulation vehicle for certain policyholders due to the low mortality cost drag:
•Middle income couple
•Business partners
•Income uses
•First-to-die rider adds flexibility
•College funding
•Indexing
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Impact on Death Benefits,
Riders, and other features
Impact on Death Benefits,
Riders, and other features
Use of Policy Loans and
Withdrawals to Deliver Income
Use of Policy Loans and
Withdrawals to Deliver Income
Income may be provided by
General Account Insurer Guarantee
Income may be provided by
General Account Insurer Guarantee
A “cousin” to Annuity GLWBs,
only better
A “cousin” to Annuity GLWBs,
only better
Biggest uncertainty is FIT
treatment
Biggest uncertainty is FIT
treatment
Use of Benefit Base concept or Account Value
definition
Use of Benefit Base concept or Account Value
definition
Another Similar Future Direction is a GMAB on an Indexed,Variable ULAnother Similar Future Direction is a GMAB on an Indexed,Variable UL
