Connolly Praised On Nonforfeiture Model Reporting
To The Editor:
I want to compliment Jim Connolly for seeing through the rhetoric at the National Association of Insurance Commissioners meeting and accurately summarizing the industrys opposition to the “Minimum Nonforfeiture Values for Universal Life Insurance Products and Variable Universal Life Insurance Products with Secondary Guarantees Model Regulation.” (See NU, Dec. 16.)
Many insurers opposed the model because it would have required them to recognize the real economic value of a secondary guarantee by providing an appropriate nonforfeiture benefit consistent with the spirit, if not the letter, of the Standard Nonforfeiture Law. This law has been a pillar of responsible life insurance regulation for more than 100 years.
There are, however, two key points not included in Mr. Connollys article. First, at least one company at the meeting, Northwestern Mutual, supported this model. Second, those actuaries who did not support the model have strayed from the principle adopted by the Guertin Committee in 1941: The surrender of a policy should neither benefit nor harm the continuing policyowners.
In other words, a surrendering policyowner should receive a nonforfeiture benefit that approximates the value of the benefit that he or she is giving up.
When insurers do not provide such nonforfeiture benefits, and when they price accordingly, they can become dependent on the forfeitures assumed to meet their pricing targets.
Sadly, they can benefit financially from high surrender rates and suffer financially if too many buyers keep their policies in force.
William C. Koenig, FSA, MAAA
Senior Vice President & Chief Actuary
Reproduced from National Underwriter Edition, February 3, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.