by Kasey Gammons, LifeTrends Sr. Analyst
Well, everyone, the end of another year is approaching us rapidly. As I sit here, sipping my hot cup of coffee, gazing out my window at the frozen wasteland of a bright, sunny, 62-degree Austin day, it seems good to engage in a bit of nostalgia, just a few minutes reflecting on this past year. While we don’t have a conveniently magical reindeer sleigh here at LifeTrends (too expensive), let’s just say the industry has a few gifts to deliver our readers this December edition. Specifically, there are three packages under the life insurance Christmas tree representing the major market trends we have observed: rising primary guarantees, guaranteed refund option (GRO) riders, and high-multiplier, high-charge index allocations.
The first gift: present that pristinely wrapped indexed universal life (IUL) illustration with the comfort and security of a primary guarantee safety net. While IUL protection products in 2018 have produced lower premiums this year (and illustrated cash value), they have also been increasing the primary guarantees to significant levels. This trend is largely an extension of the broader industry’s quest to find meaningful alternatives to the traditional guaranteed universal life (GUL) sale in light of a pervasive and persistently low interest rate environment. IUL has held the market’s unwavering focus for that alternative option, even with GUL’s premiums largely holding steady pricing in the last five years. Ten total products upped the ante on their guarantee game this year. Most were IUL offerings, but two current assumption and one variable product also made primary guarantees a focus of reprices. Primary guarantees help round out the story, balanced between both optimism and responsibility.
This second gift has really GRO’n on us. While IUL and primary guarantees seek to provide alternatives to GUL (many times at the cost to cash value), the return of premium or GRO rider trend instead aims at adding cash value back into the GUL equation. In a GUL market where products and carriers have largely pulled assumptions to base guaranteed assumptions, GRO riders aim to give clients their money back, or some of it at least, in exchange for surrendering the policy. Nationwide and New York life relit this fire with their nearly concurrent releases in August after nearly two years of silence on the GRO front. Pacific Life, meanwhile, just recently scored the buzzer-beater for 2018 with its automatically included December GRO. These three additional return of premium riders bring the GUL market’s grand total to seven products at the year’s close.
High-Multiplier, High-Charge Allocations
The third gift is the gift that keeps on multiplying. Index allocations in 2018 began seriously ramping up their interest bonus game in general, but the summit of this multiplier mountain (at least currently) is found on accounts with extra spicy multipliers attendant with substantial additional yearly charges. Assuming positive returns, account values will be multiplied by very substantial levels (50-65%). As a result, these “charge-a-pliers” take optimism on S&P returns and dial it up to eleven. However, with great bonus comes great charges, which will occur every single year irrespective of actual returns. While illustrated performance can be through the roof under the lens of consistent positive S&P returns, prudent producers would benefit from hedging strategies (such as the 70% window POINTS) which takes both more optimistic and more conservative assumptions into account. When both sides of the coin are carefully considered, this sales approach will really stuff those stockings with all the right goodies. Lincoln Financial kicked things off back in May with the Perform Account released to the WealthAccumulate IUL. Since then, both John Hancock and Nationwide have introduced these high-performing indexes to their IUL suite. We have confidence that that this trend will continue, and we will continue to closely monitor it.
What the Changes Happened?
Part of the LifeTrends offering to clients is the wealth of information we provide in our benchmarking services, which helps spur on our analysis initiatives. To give our readers a bit of an idea on the volume we deal with (and some of the value we provide), we will end on some quick facts from 2018. The market has experienced substantial overturn – this past year, we observed the following changes: 34 new products were released to the market, 55 total products were repriced, and a handful of products were retired. Subscribers had access to new rates within 24-48 hours after a reprice or release and also frequently knew of imminent pricing revisions well in advance. In just this year, LifeTrends has increased the amount of information by 16%, and tracks over 3.6 million values, offering the most robust benchmarking service in the industry. Not only are we looking at more information, the sheer number of data overturn has been substantial, thanks in large part to the incoming Principle-Based Reserves and 2017 CSO requirement starting early 2020. Since last January, on average, every number on the website has been updated this last year and then some.
So how can LifeTrends help you with your data and consulting needs? Given all the changes, all the overturn, and the many exciting trends we are seeing in this turbulent market, having the competitive information edge can make all the difference in the world. We are now offering data consulting services in the broader market, and we look forward to hearing from you! From all of us at LifeTrends, we hope you have a Merry Christmas, Happy Hanukkah, and a very Happy New Year.