Changes to 7702 (b)(2)(A) Minimum Interest Rate

[scagnt83]

Starting to hear from some actuaries that the only way MEC test on WL will result in any noticeable expanded premium room is if the carrier reprices & heavily drops their valuation rates because their understanding is 7702a that is in play says you can use as low as 2%, but if you are using 3.75% your MEC test you allow cant be run at the 2%

So you are saying the MEC valuation rate has to be the same as the 7702 valuation rate?

If thats correct, and carriers are now being forced to use the new lower rate, that would result in the lower rate being used for the MEC calculation.... resulting in more room for excess premium.

Do you follow?/agree?

 

[scagnt83]

I believe the valuation regulations (maybe state based)

For MEC? That is Federally based. Carrier reserve assumptions are state based, but on the guidance of the NAIC.

 

[Allen Trent]

For MEC? That is Federally based. Carrier reserve assumptions are state based, but on the guidance of the NAIC.

No, I am talking about all the repricing occuring right now due to the valuation & nonforfeiture rates sustained averages impacting WL & ROP products causing higher reserve factors. I recall seeing it was the 1st time in 8 years the rates were changing & as of July had shown to be dropping from 4.5 to 4%, but I believe they came in even lower to 3.75%.

Likely nationally driven by NAIC models, but I am assuming they are adopted & regulated at the state level & referring to the NAIC model regulation----similar to what is occuring now in many states adopting the NAIC Annuity best interest model language

 

[pfg1]

The other issue I'm wondering about ... given the changes in contractual guarantees, won't the carriers have to re-write new products and go through the whole state approval process before this becomes a reality? Also, most likely updates to illustration software which is a nightmare for most companies LOL.
WL is probably as good as its gonna be right now, from an organic growth standpoint. Sell a bunch while you can

My gut says we have about a year... maybe.

 

[Tahoe Ray]

I talked to a few carrier reps today and both said that this "may" help GULs b/c it will help lower reserving requirements for the secondary/shadow accounts?

I'm honestly unsure how that would work but it was interesting.

 

[scagnt83]

The other issue I'm wondering about ... given the changes in contractual guarantees, won't the carriers have to re-write new products and go through the whole state approval process before this becomes a reality? Also, most likely updates to illustration software which is a nightmare for most companies LOL.

Not necessarily.

Every life insurance contract contains a section related to changes in government regulations. It allows the carrier to amend an existing contract to comply with changes in Federal Legislation.

So hypothetically, since the law states "all policies sold starting 1/1/21", policies sold right now could have rates amended once the carrier figures out the numbers from the rate changes. Now will they? I doubt it. If they did, they would have to give the owners a chance to amend premiums/db/etc.

However, this clause could make it possible for them to go ahead with existing policy lines once the numbers are calculated.

But in reality carriers will want new products for this. So if that happened, it would only be until the new products get approved.

It could partly depend on what the feds dictate in subsequent guidance on the issue.

 

[scagnt83]

WL is probably as good as its gonna be right now, from an organic growth standpoint. Sell a bunch while you can

My gut says we have about a year... maybe.

Not sure I agree with that.

In theory, one of the main points of this change was to take away the "restrictions" 7702 imposed on Cash Value Life Insurance.

MEC is still there, but that is only 1 piece of the equation when maxing out a policy and getting excess premium into it.

It was the major mutuals who pushed this through. Its supposed to be a positive thing for CV on maxed out policies (not sure if its that or not yet tbh). idk yet. still sorting through it

 

[scagnt83]

I talked to a few carrier reps today and both said that this "may" help GULs b/c it will help lower reserving requirements for the secondary/shadow accounts?

I'm honestly unsure how that would work but it was interesting.

Thats good to hear, I had hypothesized that earlier in this thread.

The secondary account funding is dictated by the primary account's funding. So if the primary is funded at a higher reserve, there is less premium required to fund the secondary guarantee. Idk how exactly it balances out to what advantage, but it seemed like it could be a good thing overall to GUL.

 

[scagnt83]

WL is probably as good as its gonna be right now, from an organic growth standpoint. Sell a bunch while you can

My gut says we have about a year... maybe.

Seems like you were right, at least with Mass.
Long term growth will be the same.
Short term lower.
Premium per $1k in DB will be higher.

Changes happen "latter in the year".

Oh well.

They are already repricing their WL starting Feb because of low rate environment. Cutting comp too.