AG49-A Revisions: Same Song, Different Dance

Just 2.5 years after the implementation of the last revision to Actuarial Guideline 49, we’re here once again to discuss another round of updates.

Now that all LifeTrends IUL benchmarks have been updated, here’s a quick look at the history, and some initial insights we’ve gained along the way.

AG49 to AG49-A

AG49 debuted in 2015 with goals to:

1. Provide guidance for Indexed Universal Life products in determining a maximum illustrated index credited rate
2. Limit policy loan leverage
3. Require additional disclosure in the spirit of consumer understanding

Each revision since the adoption has focused on bringing consistency to crediting methods and enhancing consumer understanding (with the first revision further limiting policy loan leverage).

Mid-December 2020 “AG49-A” took aim at indices with multipliers, cap buy-ups, and other enhancements. These index features became a major trend in the industry after Pacific Life debuted their multiplier-focused product, Pacific Discovery Xelerator, in February of 2017. This product illustratively blew other products out of the water and experienced a dramatic increase in sales the following years.

This experience demonstrated an opportunity that allowed carriers to leverage creative index designs and achieve desired illustrated result. But as the industry began adopting new designs, resulting in inconsistent crediting methods across the board, this heightened the sensitivity to perceived confusion for potential consumers. As such, AG49-A aimed to further limit multipliers and other enhancements so they could no longer illustrate better than products without those same features.

Upon implementation, we saw large illustration shifts averaging 25-50% lower distributions for products with enhancements. (Please see our ‘All Attention on AG49-A’ white paper for more insights.)

AG49-A to Now

Beyond general adoption and limiting multiplier performance, the most significant emerging trend after AG49-A implementation was a newfound emphasis in uncapped proprietary indices that aimed at volatility control. Prior to AG49-A, Allianz and American General (now Corebridge) actively placed sales emphasis on their proprietary allocations and within the first 4 months of AG49-A, 4 additional carriers started offering similar options. Fast forward to 2023 and LifeTrends is now tracking 11 carriers with 1 or more products with such allocations.

With rapid carrier adoption and large illustrative boosts over the traditionally capped S&P 500 allocations (in an extreme example, more than doubling projected distribution income), these accounts quickly gathered Regulators attention. They once again expressed concern with a lack of consistency between crediting methods and a continued deterioration of consumer understanding.

As a result, on May 1, 2023, revisions to AG49-A went into effect. This update directly targeted these accounts with the intent of disallowing uncapped vol-control indices from illustrating better than a product’s Benchmark Index Account (BIA) at the maximum illustrated rate[1].

AG49-A Revision Quick Insights

As is the case with most regulatory actions, there has been a range of responses from IUL carriers, with some consistent trends emerging among the accounts LifeTrends benchmarks.

Illustrative Performance Comparisons[2]

• Before the AG49-A Revision: Vol-control accounts generally illustrated better than their S&P counterparts
• Accumulation
• Overall average +55% better
• Range: -16% worse to +470% better
• Protection
• Overall average +14% better
• Range: -8% worse to 27% better
• After the AG49-A Revision: Vol-control accounts generally had a drop in illustrative performance compared to before the change
• Accumulation
• Overall average -29% worse
• Range: +10% increase in performance to -70% drop
• Protection
• Overall average -33% worse
• Range: 2% increase in performance to -65% drop
• After the AG49-A Revision: Vol-control accounts generally perform worse than their S&P counterparts
• Accumulation
• Overall average -19% worse
• Range: +29% better to -51% worse
• Protection
• Overall average -12% worse
• Range: +17% better to -22% worse

Account Changes

• After the AG49-A Revision, vol-control accounts specifically saw a drop in maximum illustrated rates:
  • Average drop was over 1%
  • Only 2 companies, National Life and Pacific Life’s Horizon products saw increases after the AG49-A Revision.
  • Pacific Life increased participation rates on their volatility control account and increased caps on their capped S&P options.
  • National Life significantly increased participation rates on their US Pacesetter allocation, going from 130% to 215%.
• Changes in default account – looking at the shift of where carriers were defaulting their allocations, 36% of carriers changed their default allocation back to an S&P 500 option

Allocation Default Before and After	# of Carriers
Remained S&P	2
Switched from vol-control to S&P	4
Remained vol-control	5

• See our pinned article for more details on company rate changes and a listing of carrier illustrations defaults.

Next Steps

This was our first pass at digesting the (once again) industry shifting dynamic… but more changes are sure to come. Historically, resilient Carriers have demonstrated a surge of creativity when faced with guidelines/limitations… and we’d expect nothing less from the agile and determined product designers.  

Look for a more in-depth analysis white paper this summer!

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[1] Some carriers volatility controlled account may still illustratively outperform other accounts under the AG49-A Revisions due to other changes they have made with regards to Caps, Participation Rates, non-illustratable BIA accounts, etc…

[2] This section is looking at Max% switch at basis with fixed loans for accumulation type comparisons and Max% $1 CSV at Age 121 for protection comparisons, for all payment durations. SIUL comparisons to be done in the future white paper.