In May of this year, we reported that the first letters informing policyholders of the COI increase in John Hancock Performance UL products arrived. In that post, we noted we would report back when we had reviewed in force illustrations to determine the amount or pattern of the cost increases. Our NYC office headed up by Frank Tomasello did just that. Frank, along with Pat Hall and Mike Irey, reviewed 140 of the policies we manage for institutional investors and found the COI increase was spread over the policy portfolios with no clear-cut pattern based on issue age or other factors, though they did note some trends.
Most of the COI increases we have seen in the last few years have no clear pattern. Transamerica, a carrier who has announced a number of increases has seemingly had a random distribution of increase amounts – some COI increases in the single digits and some, like the policy we reported on in February of 2016, with increases of 99% which caused carrying costs to more than double. In April of this year, we reported that the carrier was instituting increases that would compound over three years, effectively causing the COI increase to reach 168% after three years.
Of the policies we reviewed, the range of increases went from a low of 0% on one policy to a high of 90% on a policy issued in May of 2007 on a female, issue age 75. As seen in the chart to the right, about 60% of the increases in our portfolio were in the 11-50% range.
With this new John Hancock increase, there was no clear delineation of issue age affecting the percentage increase. If you remember, we reported back in November of 2015 that AXA, when it increased the COI on its Athena II policies for all insureds with issue age 70 and above, had a two-tiered and consistent increase amount. We found those policies issued on insureds in their 70s appeared to show an approximate 29% increase in COI rates, while policies issued to insureds in their 80s were much higher, reaching 72%.
With the new John Hancock increase, the highest percentage increases were scattered among the age groups as seen in the chart to the right. The only general pattern that can be noticed is that the issue ages with the highest COI increases are typically followed by issue ages with the smallest increases – followed by a gradual increase upward until the increase drops off again.
When we reviewed the COI increase based on the sex of the insured, we found that for our population, the increase for females skewed higher than for males. Approximately 64% of the policies on males fell in the 11-50% increase range, for females the approximate same percentage fell in a higher range, 31-70%. Not surprisingly, the average increase for females was greater than that of males. The COI increase on females averaged 47.52%, males averaged 35.75%
The John Hancock Performance UL policy had several different “series” that are noted on the bottom left of the policy contract. In the portfolio of 140 policies we studied, we had two 01PERUL series and two 09PERUL series policies. Those four policies were statistically insignificant, but we did review 103 of the 06PERUL series policies and 33 of the 03PERUL series policies.
The issue dates for the 03PERUL series ranged from 9/1/2004 to 12/27/2006, the 06PERUL issue dates ran from 9/7/2006 to 7/24/2009.
The clear majority, approximately 85%, of the 03PERUL policies fell in the 11-50% COI increase range, with only 3 higher than 50%. In the 06PERUL portfolio, 76% of the policies were spread evenly across three ranges from 11-70% and 42% had COI increases of 51% or more, resulting in a higher average increase in COI rates. The average increase in the 03 series was 29.03%, the increase in the 06 series was 44.80%.
It must be pointed out that the portfolio that ITM TwentyFirst manages – though a large portfolio for one company to be managing, is still a relatively small percentage of the policies affected. We cannot confirm if the statistics we have found will hold true for the entire block of policies affected, we can provide guidance only on those we can analyze.
If there are any questions or comments about this study, please contact Frank Tomasello at email@example.com.