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Backtesting Under Fire: Potential New Rules for Engineered Indexes

On August 9th, 2025, the Life Actuarial Task Force (LATF) Life and Annuity Illustration (A) Subgroup (what a name) released the newest revision proposal for Actuarial Guideline 49. This version reflects suggestions made by the American Academy of Actuaries and the American Council of Life Insurers (ACLI), focusing on how indexes are presented in an illustration. Its clear intent is to address the industry trend of using low volatility or engineered indexes that display hypothetical returns in years prior to the indexes’ actual existence. 

Importantly, there are no changes that should impact illustrated rates or values. This proposal is solely geared towards how recently launched indexes are displayed in the narrative (non-ledger) section of the illustration. This means if it was implemented today, LifeTrends benchmarks would not change with products’ current allocations.

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