Since the beginning of the year, we have written about two carriers restricting their in force ledgers. John Hancock recently noted a “temporary” situation on its Performance UL policies issued in certain states from 2003 to 2010, and alerted us that current assumption illustrations were unavailable for those policies. Current assumption illustrations are those based on the current interest being credited and the current cost of insurance (COI) being charged on a policy. In March of this year, Transamerica alerted us that they would “only run illustrations based on the guaranteed maximum charges and the guaranteed minimum interest rate” on a block of in force policies. We noted that this was the second time that Transamerica placed restrictions on a block of policies. The prior restriction was a precursor to a cost of insurance increase.
Last week, our servicing team in Iowa received notice from Genworth that they would be unable to provide current assumption illustrations on a policy we manage. They noted “existing illustration regulations” which limited them to only providing illustration projections “based on contractually guaranteed interest and cost of insurance, i.e., the lowest interest and highest cost of insurance rates allowed by your policy.”
We caution reading too much into this Genworth notice as the restriction appears to be limited and no COI increase has been announced. We will, however, be tracking all the referenced policies for any changes in their cost structure.
Is there a source that clarifies the “existing illustration regulations” (and thus the defense) these carriers are utilizing to deny requests for complete in-force illustrations?
Miller & Associates
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Bill: I do not have an answer for that. Sorry
Section 10 C of the NAIC model regulation says the “insurer shall furnish an in force illustration … based on the insurer’s present illustrated scale”. However, if the policy is not currently illustrated for sales, I think they can say they only illustrate guarantees. See if the policy statement has text that says how long the policy will last under current and guaranteed assumptions without a year by year projection.
If the cash value starts to decrease then typically the policy would be projected to lapse in about 10 years. We recommend making a change by then to either add up to the max premium or to reduce the benefit.