San Antonio, Texas

Equity indexed universal life insurance is starting to show some significant development activity, according to Tim Pfeifer, principal and consulting actuary at Milliman, Chicago.

Like their equity index annuity counterparts, EIULs have a minimum interest guarantee but also credit interest by linking gains to growth in an equity index.

“In the last 6 months,” Pfeifer said, “we’ve been getting more questions about this type of product.”

EIUL sales reached around $150 million in 2004, Pfeifer noted. “That’s not a lot, but it could easily double with the entry of new players,” he said. Flat equity markets and weak interest rates should spur growth, too, he predicted here at the life insurance conference sponsored by LIMRA International, LOMA, Society of Actuaries and American Council of Life Insurers.

The recent EIUL activity is coming in wake of the success EIAs have had in recent years, he said. Other EIUL drivers include their potential for upside accumulation plus the attribute of having floor guarantees–factors widely seen as helping spur the sales growth of EIAs.

Right now, AmerUs dominates the EIUL market, Pfeifer said, and AIG, Old Mutual and Allianz are “gathering steam.”

In addition, he said, “several large variable universal life players” are looking to EIUL as a means of getting their companies into certain distribution channels. These are VUL carriers that are “doing well” with their existing products, he noted.

But EIUL products do raise a number of design and regulatory issues, the consultant continued. For instance, most EIUL products will be funded with flexible premiums (unlike EIAs, which are often single-premium sales). That means EIUL carriers will need to find ways to set up the flexible-premium payments. Meanwhile, regulators will want to be sure the disclosure is such that the customer understands how the policy credits its interest. In addition, he said, the rules are not yet clear on what to illustrate in an EIUL policy.

Pfeifer noted that the VUL market is about to see some changes, too. For instance, VUL carriers now are looking to develop more competitive secondary death benefit guarantees, introduce true living benefit guarantees and build broader product distribution, he said. The goal is to help VUL sales move out of the doldrums they’ve been in, Pfeifer indicated.

Another life policy trend involves development of “combination life and health products,” he added. Examples include having UL or VUL chassis with acceleration of face amount in event the insured needs long term care; the addition of LTC riders to life policies, or life riders to LTC policies; offering multiple product discounts; and designing so-called life cycle products.

In the traditional universal life market, “dial-a-guarantee” features became more prevalent in 2004, said Nancy Winnings, consulting actuary, Milliman. But, though the industry has seen competitive activity in recent years involving secondary guarantee premiums, she predicted that in 2005, there will be “fewer new aggressive UL secondary guarantee products.” However, cash accumulation products are gaining more momentum, she said.