By Roger l. Blease
Universal life products marketed with minimum long-term death benefit guarantees for a minimum premium outlay have been a boon to companies in this market. As competitive pressures have driven the minimum premiums ever lower, actuaries and regulators have been struggling with the question of adequate reserving levels for these products.
Most agree that even though premium risk is shifted from the consumer to the company, reserves for secondary guarantees are adequate. However, as demand rises for these products and premiums continue to trend lower, increasing attention is being given to what a “reasonable risk” is and how companies would be impacted from a competitive and capital position if higher reserve levels were required by legislation.
Companies already are looking to balance policy risk in a number of ways such as by tightening underwriting and making guarantee durations more flexible (think “dial-a-guarantee”). I expected to see these average minimum premiums either level off or rise slightly. However, Full Disclosure data reveals that, as of the first of the year, average minimum premium levels dropped about 3% from the last time this data was collected in July 2004. This was true for best nonsmoker or best tobacco issue classes. The decrease was less for standard nontobacco classes, but there was still an improvement. The size of the groups between July and January was nearly constant.
Other developments for UL in Full Disclosure include the first implementations of the 2001 CSO mortality table. As of Jan. 1, 2005, all of the companies still were employing the 1980 table with the exception of MetLife, Midland National Life, New York Life (NYLIAC Protector 2005 only) and West Coast Life (in certain states). There are sure to be many more coming soon as the costs in the new table are about 30% cheaper than the one it replaces. This means lower current and guaranteed maximum costs of insurance being deducted from policy values. The new table will be required for all polices by Jan. 1, 2009.