by Kasey Gammons, LifeTrends Sr. Analyst
Sometimes, one of the most cathartic things anyone can do is pause and reflect. In those moments when I actually take the time to slow the frenetic activity in daily life, setting my mind to consider where I’ve been, where I am, and where I’m going, I typically find some clarity I hadn’t before. While you may have suspicions at this point that LifeTrends has breached into some strange, self-help guru realm – never fear, we simply want to take some time and reflect just a bit: how have some things changed in this industry over time? Specifically, we want our walk down memory lane focused on two important markets in the last five years – guaranteed universal life (GUL) and protection-centered indexed universal life (IUL).
To engage in our nostalgic exercise, we decided to examine a specific and common scenario over a five-year period to see what we could glean. We took a 45-year-old male with a preferred rating and a $1 million policy, and then we examined how the lifetime GUL and protection IUL markets historically looked on an annual basis from five years ago to the present (Indexed UL assumed under the conservative 5% illustrated rate, targeting $1 Cash Surrender Value at maturity).
When people think of the GUL market over time, likely one of the first things that comes to mind is that oh so familiar arch-enemy: the persistent low interest rate environment. The majority of reprices over the past five years has centered around this thorny conundrum: either as a rate hike or as a readjustment back to center after a particularly prickly price increase. Many carriers explicitly name this dastardly foe as the primary reason for increasing premium pricing, especially in recent memory. For our scenario, the top five market premiums in 2013 belonged to Prudential, Nationwide, Protective, American General, and North American. It should come as no surprise that these traditionally strong GUL players were hit by the one-two punches of low interest rates and high reserving requirements, forcing premiums up by significant levels in every case. In July of 2018, only Nationwide remains in the fight after the smoke clears. Joining Nationwide at market’s peak are perhaps more unusual suspects in this sphere (from an historical perspective): American National, Cincinnati Life, Symetra, and Penn Mutual.
While peak products have mostly been overturned in the last five years, the premium values at the top of the market have only increased by a relatively small amount. The average of the top five premiums in 2018 is only around 5% more expensive than in 2013. The product offering of the GUL market has also remained relatively constant over time, despite some removals and additions to the LifeTrends’ benchmarks. We currently look at only two more products than we did back in ’13.
Protection-based Indexed UL, by contrast, was very much in its infancy five years ago. There were relatively few players in this realm and premiums tended to be very expensive, especially when compared with GUL offerings – half of the entire 2013 NLG-Lifetime market in our scenario provided cheaper premiums than the very best IUL protection product. Additionally, the cheapest premium for the 5% IUL protection market was about 19% more expensive than the corresponding UL NLG-Lifetime premium. As carriers sought ways to expand their portfolio and drive business that was independent of the high reserving GUL requirements, Indexed UL became more and more the engine powering a new sales focus for many. Since then, the protection market has exploded; LifeTrends now maintains data on 27 products in the benchmarks, twice as many products as we did in 2013. As new products have entered, premiums have plummeted – the top five products’ premium average in 2018 is around 22% cheaper than in 2013. Pricing has dropped so extensively for IUL protection that competitive products at conservative illustrated rates frequently underprice the best contenders in lifetime GUL for the same scenario.
More recently, carrier’s have sought new ways to bolster confidence in the IUL sale against the UL-NLG market. Probably the fastest growing trend in the market has been to load protection products with stronger primary guarantees as a foil for GUL. Even a few years back, primary guarantees were a relatively minor focus, but have since become a powerful addition to a product’s narrative. Just this year, four protection specific releases have directly aimed at providing low-cost premium options with at or near life expectancy guarantees: AXA’s IUL Protect, Global Atlantic’s Lifetime Foundation Elite, Lincoln’s WealthPreserve IUL (2017), and Pacific Life’s Pacific Discovery Protector IUL. In the example scenario, there are nine product offerings that provide a guarantee that lasts to at least age 85, over double what was available five years ago.
So where do we land when the LifeTrends time machine arrives in the present? We see a GUL market that is like the family’s work horse, steady, strong, and consistent. It retains very competitive premiums, even with the relative instability from the low interest rate environment. The major players may not be identical, but the market as a whole has held up rather well under pressure. Protection IUL by contrast is more like the swift stallion, barreling forward with the speed of innovation. A veritable host of new products, interest bonuses, strong primary guarantees, and let’s not forget the ever cheaper illustrated premiums, this market has blazed a path forward in the last five years. While our life insurance time machine can’t look to the future, we look forward to observing it and helping with all your life insurance self-help needs.