The cost of insurance (COI) increases of the last 18 months have wrecked estate plans and created financial hardship among policy owners. The negative effect is clear – some policy carrying costs have more than doubled (see:Transamerica Cost Increase Causes Premium to Maturity to More Than Double: A Case Study for Trustees).  What is not so clear – who is to blame?

No less than five lawsuits alleging foul play are currently filed against life insurance carriers.  AXA, which increased costs on 1,700 specified Athena II policies (see: Lawsuit Filed Against AXA for Athena Life II Cost of Insurance Increase) is accused of subjecting policy owners to “an unlawful and excessive cost of insurance increase,” in a lawsuit filed in February of this year. According to the suit, while AXA insisted “affected insureds are dying sooner than … anticipated .… mortality trends for the affected insureds have continued to improve substantially since the time the policies were issued” (1).

Transamerica, in a suit spearheaded by Consumer Watchdog, is accused of an “unconscionable business practice” that is hurting “elderly Policyholders who have dutifully paid premiums for 20 years or more” (2).  A number of articles in The Wall Street Journal and The New York Times have highlighted the hardship of higher costs, especially for older policy owners.  The suit accused Transamerica of breaching the contract terms “in order to avoid its obligation to credit the guaranteed interest rates under the policies.”  Since the carrier’s investment returns are insufficient to support the policies’ guaranteed 5.5% rate, the suit says “they are attempting to offset the guarantee through higher monthly deductions taken from the policyholders’ accumulation accounts.”

Transamerica is also receiving unwanted attention for its use of so called “shadow insurance,” a practice that moves liabilities from regulated companies that market life insurance to shadow reinsurers, which tend to be less regulated, creating “unrated off-balance-sheet entities within the same insurance group” (3). The practice was noted in the Consumer Watchdog suit and linked to both dividend upstreaming and the COI increases.  That suit notes that in 2010, “Transamerica reported that it had taken reserve credits as a result of reinsurance transactions with affiliated reinsurance companies totaling approximately $30 billion, based on representations that Transamerica had made ample provision to cover the liabilities relating to those policies, including the future COI associated with its universal life policies.”  During that same year they “up-streamed dividends to their ultimate parent holding company, AEGON NV, totaling $2.3 billion.”  The suit infers that the practice left the carrier financially vulnerable and led to the cost increases.

Joseph Belth, professor emeritus of insurance at Indiana University and a well-known industry icon, calls shadow insurance a “shell game” and warns the “industry is headed for serious trouble” (4).  He has brought suit against the state of Iowa to release information on the practice and also tied it into the COI increase, alleging that it “left a hole in Transamerica finances, resulting in its call for substantial life insurance premium increases” (5).

As a response, the carriers have pushed back. An AXA representative declared that the lawsuit against AXA “had no merit.” It is their belief that in their “effort to prudently manage” their policies, a “change was necessary because they expected future mortality and investment experience to be far less favorable than anticipated” (6).

There is no doubt that carrier investment experience has been hampered by the historically low interest environment which has affected their decisions. Most insurance carrier investments are centered on fixed investments, and part of their profits depend on the spread between what they earn and what they credit to the policies. Since the market correction of 2007-08, fixed rates have been squashed by central banks and governments worldwide. As an outcome, the investment spreads the carriers expect have shrunk, and in some cases, disappeared.  Perhaps that is another place to affix blame. While many believe that the low rates were necessary to guide the world economy to safer ground, there is an increasing call for a return to more normal rates, whatever that might be. An increase in interest rates would certainly be more beneficial to insurance companies, but not governments.  As we have noted (see: Low Interest Rate Winners and Losers), it was recently reported that between 2007 and 2012, “governments in the United States, the United Kingdom, and the Eurozone had collectively benefited by $1.6 trillion” because of low borrowing rates.  With 35% of all government borrowing at negative interest rates (7), and borrowing increasing yearly, there is little government incentive to increase rates. In the US, government debt as a percentage of gross domestic product has doubled in the last 9 years, yet net payments on the debt have declined. Without an increase in fixed rates, the stress on carriers will only grow. In the US and in Europe, increasing regulation and reserve requirements have placed additional pressure on the carriers while the governments are assisting in maintaining, what many economists believe, artificially low rates.

While the finger pointing has focused on the carriers and those who have kept interest rates low, we expect that the sights will soon turn to those who manage the policies: the Trust Owned Life Insurance (TOLI) trustees who may or may not have adequately informed grantors, and beneficiaries.  Life insurance is an asset affected dramatically by market changes and must be managed with those forces in mind.

Regardless of who or what is responsible for the increased cost of insurance charges, the impact on many policy owners has been severe. We see many policy owners and trustees looking for advice on what to do with policies impacted by the increases. In some cases, parties have determined they no longer want the insurance.  On November 1st we will be providing a free webinar entitled, What To Do With An Unwanted Life Insurance Policy. The session will provide one hour of free CE for CFP, CTFA and FIRMA members and will features real life case studies, including one centered around an actual cost of insurance increase case we reviewed.  To register for the course, simply click here.


  1. Brach Family Foundation v. AXA Equitable, U.S. District Court, Southern District of New York, Case No. 1:16-cv-740.)
  2. Feller et al v. Transamerica Life Insurance Company, United States District Court, Central District of California (Case 2:16-cv-01378)
  3. Minneapolis Fed Research, Shadow Insurance, Staff Report 505, Revised May 2016.
  4. Iowa in Middle of Debate Over ‘Shadow Insurance’ Deals, Insurance Journal, August 31, 2016.
  5. Joseph M Belth v. Iowa Insurance Division, filed September 2, 2016.
  6. Courts Divided Over Rising Insurance Costs,, March 14, 2016
  7. Citi Research,