Keeping Track of Change, Change and More Change

by Erin Finnegan, CLF®, Head of Sales & Marketing and Sydney Presley, Director of Product Management

The last five years in the life insurance space has been anything but dull. We faced regulation, were confronted with a global pandemic, and have witnessed advances in Underwriting and digital capabilities. We’ve also finally started to climb out of a lengthy low-interest rate environment. Let’s revisit some of the trends we have tracked since 2018 as well as all of the ways we have kept you in the know.

Regulation 2017 CSO and PBR

Remember the excitement for much of 2018 and essentially all of 2019? Carriers updated their product portfolios to the new standard mortality table—the 2017 Commissioners Standard Ordinary (CSO) Table and Principle-Based Reserves (PBR)—effective January 1, 2020. Basically, the 2017 CSO table provides lower mortality rates than the prior 2001 CSO table. Beyond that, the method of calculating reserves was firmly in place for countless years and was static; PBR allows carriers to establish reserves based on their own experience instead of leveraging a “one-size-fits-all” approach.

Need a reminder about the flurry of changes? Every product had to be repriced to adjust for the new mortality tables and reserving calculations. Take a look at what we witnessed in individual markets in our December 2019 POINTS piece, “2019 Year in Review: Don’t Blink”.


AG49-A arrived on the scene and limited how carriers could illustrate IUL products, with the goal being increased transparency to the end consumer. (Carriers had to comply by December 14, 2020 at the latest.) A major takeaway was that products with multipliers, high cap accounts, or other enhancements were no longer allowed to illustrate higher performance than products that did not include these options. Participating loans also changed: loan crediting rates could no longer be more than 0.5% higher than the loan interest rate. From late October through December 2020, roughly 50 products (accounting for 750,000 data points) adjusted to come into compliance.

However, proprietary indices soon started to gain traction as allocation options that often illustrate more favorably than the benchmark index account. Before AG49-A, there were two companies with these options. Today, we are illustrating 10 companies with such accounts. Similar to the multipliers, high cap accounts, or other enhancements that were the subject of AG49-A, these accounts are the target of the revision, AG49-B, just around the corner (currently set for May). More to come from us on AG49-B developments – stay tuned!

Section 7702

In late December 2020, the Consolidated Appropriations Act 2021 was passed. Hidden within the bill was (surprise!) a significant change to the interest rates in IRC Section 7702. Section 7702 characterizes rules around how life insurance meets the requirements for tax benefits. While the specifics of the change were quite complex (to learn more, see our February 2021 POINTS “7702 and 7702A: Unpacking the Changes”) fundamentally, going forward, for a specific death benefit, the guideline and MEC premiums are higher than they have been in the past. As such, companies swiftly focused on updating their product portfolios, admin systems, and illustration systems throughout 2021.  At LifeTrends, roughly 2.7MM data points turned over between 7702, new products and reprices.

COVID-19 Leads to Digital and Technology Advancements

At the onset of the pandemic, life insurance carriers started to make Underwriting guideline adjustments in response. If potential applicants were infected with COVID, often there was a waiting period before they could seek coverage. Some consumers over a specific age were not allowed to move forward with an application. Although many restrictions have since been lifted, carriers are still grappling with the myriad of ways COVID has impacted mortality.

At the same time, the presence of COVID caused an enormous shift in the life insurance marketplace. It actually created a demand for life insurance. Mortality was top of mind for many consumers who realized they didn’t have a solid financial plan in place. Yet, suddenly, examiners were not able to enter consumers’ homes to take labs. APS records became more difficult to obtain. Some physician offices even closed under the strain of the pandemic. Carriers (and their distribution partners) quickly pivoted to keep the industry going. Everyone rose to the occasion – carriers rolled out Accelerated Underwriting programs and e-platforms in short order. Independent Marketing Organizations (IMOs) and Brokerage General Agencies (BGAs) adopted these platforms in rapid fashion, as well as Teams and Zoom for meetings with their advisors. Technology and e-everything has become our new normal – it is certainly here to stay, and we will only continue to see improvements.

Interest Rate Changes

In our “Interest Rate Interplay: A Chief Actuary’s View” POINTS piece, we noted that the Federal Funds rate had dropped to 0.25% in March of 2020. Now targeting between 4.50% and 4.75%, the picture has changed substantially, but what has that meant for product changes specifically in the last year?

When it comes to Universal Life products, there was roughly the same number of changes seen in 2021; however, in contrast to previous years, there was a switch where the majority of changes were increasing. At the end of 2022, the average UL interest rate was .25% higher than the beginning of the year, landing at 3.78%. National Life made the most and largest adjustments throughout 2022 – starting the year crediting 2.70% and ending at 5.50%.

Year # of changes # of increases Avg. rate (EOY)
2021 18 1 3.53%
2022 22 17 3.78%

For Indexed Universal Life, we looked at cap changes to capture how the rates have been moving in 2022.  We saw 55 products adjust their cap rates through the year, across 40 unique products (some products changed multiple times in the year). In contrast to the UL interest rates, IUL caps moved in both directions and roughly 1/3 of the changes were increases.

The one constant we can depend on is change. As regulation and products evolve, we will be here every step of the way to give you our insight and objective analysis.