The 2001 Commissioners Standard Ordinary Table adopted by the National Association of Insurance Commissioners will likely reduce term and universal life insurance rates, industry observers say. But the experts are less certain about the degree to which the improved mortality risks might affect the reinsurance market for level-premium term and universal life policies.
Robert Hupf, vice president and actuary in charge of life products for Mutual of Omaha, Omaha, Neb., says his company has done some planning as to what it will do but points out the earliest the new tables would take effect is Jan. 1, 2004.
“Even then, it would only be in effect in some states,” Hupf says. “Our company keeps only one financial statement for all states, so to lower our reserves, we would need every state to have adopted that table. So were probably not going to have anything on the street thats affected by it until, at the earliest, Jan. 1, 2005.”
Even so, industry executives foresee that the 2001 CSO tables could significantly reduce the impact of tighter reserving requirements imposed on many life insurance products by the Kansas City-based NAICs 1999 Valuation of Life Insurance Policies model regulation, more commonly known as Guideline Triple-X.
“2001 CSO will generally have little impact on Guardians deficiency reserves,” says Michael Barsky, pricing actuary for the Guardian Life Insurance Company of America, New York.
Carriers that currently use more conservative mortality tables could ultimately see significant reductions in their deficiency reserves, Barsky adds. However, Guardian, like a number of life insurers, has already adjusted rates downward based on its own reduced mortality projections, he notes.
“I dont expect any major changes in Guardians overall need for reinsurance on term insurance,” says Barsky.
Most of Guardians life business is participating whole life, which does not clearly benefit from the new table, Barsky notes.
“As such, I do not expect the new tables to have a significant impact on our business in the next few years,” he says.
“For a cash-value accumulation product, you would not expect much benefit from moving to the new table,” says Nancy M. Kenneally, a consultant with Tillinghast-Towers Perrins financial services practice, New York. “In fact, you might see some sort of negative consequences, because the table will reduce the guideline premiums and so will reduce the maximum amount that can be deposited in a policy.
“For products like term and whole life, there you would see reductions in premiums because of improvements in mortality,” Kenneally continues. “The reductions will vary by risk class and between males and females, but in general, you are likely to see reductions of between 10% to 15%.”
Reinsurers of term and universal life products believe that the market for their products will remain strong, even after most states adopt the new tables.
Robert A. Diefenbacher, regional pricing leader for the Employers Reinsurance unit of General Electric Company, Fairfield, Conn., says that because insurers will still have to meet Triple-X reserving requirements, he doesnt see the new CSO table making a big difference for his company.
“In general, I think the table is not going to have a huge impact on term products in the [reinsurance] industry,” Diefenbacher says.
Executives at Transamerica Reinsurance Charlotte, N.C., a unit of AEGON N.V., The Hague, Netherlands, predict that the term market will continue to grow and believe reinsurers will still be the primary source for funding that growth.