One of the highlights for us here at ITM TwentyFirst was the June 1 merger of Insurance IQ, Insurance Trust Monitor (ITM), and TwentyFirst (See Merger of Leading Life Insurance Service Firms) to create ITM TwentyFirst. Synergy is a term thrown around easily when firms join forces, but in this case, it is true. The three firms have blended seamlessly to create the nation’s pre-eminent life insurance policy management firm.
One of the initial benefits of the merger was the introduction of ITM University, a web-based educational series providing free CE for CFP® and CTFA designations. The sessions focus on managing TOLI trusts and other hard-to-value assets, as well as other important topics like the looming Department of Labor (DOL) Fiduciary Regulations. See https://www.itm21st.com/Education for a listing of our first sessions for 2016.
In the Trust Owned Life Insurance (TOLI) world, 2015 saw a slight increase in institutional pricing for TOLI services. We have heard anecdotally of some large payouts for TOLI policy mismanagement (none of our clients). It appears trustees are finally just beginning to truly understand the liability of this asset class and to price their services to reflect that.
The successor trustee business saw an uptick in 2015. Trustees are realizing that if they cannot manage this asset profitably while also mitigating liability, it might be better to offload the asset to someone who can. We know trustees that will accept these TOLI trusts, and their business is booming.
We spoke earlier in the year about the problem trustees have when managing policies that do not live up to sales illustration expectations. See Life Insurance Illustration Assumptions…a Trustee’s Dilemma. The life insurance industry has often provided what turned out to be overly optimistic sales illustrations since they tend to drive policy premium costs lower, making the sale a bit easier. This year, the National Association of Insurance Commissioners (NAIC) took a look at the sales practices being used to sell the industry’s hottest product, Indexed Universal Life (IUL), and decided that the hypothetical rates shown in these illustrations were, in fact, overly optimistic. In September, the NAIC published a new regulation that limits the maximum crediting rate that can be shown on both sales and in-force ledgers for IUL policies to approximately 7%, with slight carrier and product variation based on the specific methodology used. See Actuarial Guideline XLIX Will Mandate More Realistic Assumptions for Index-Based Life Insurance Policies.
Managing a life insurance policy has not gotten easier, for sure, unless your name is Max-Hervé George (See The Best Life Insurance Policy Ever . . . Unless Your Name is Aviva), who could be a billionaire by his 30th birthday because of an odd fixed-price arbitrage life insurance contract that allows him to place his investment bets in the policy cash value while essentially knowing the outcome. His good fortune is Aviva’s problem, and litigation surrounding the policy contract continues.
For the rest of us managing this asset, it is definitely harder. The low interest rate environment, even with the Fed’s bump a week or so ago, is going to be with us a while. The effect of the low interest rates on policies, especially Current Assumption Universal Life (CAUL) policies, has been dramatic, with the cost of insurance (COI) in some policies rising, something that was unheard of just a few years ago. We first sounded the alarm on the COI increase in an August blog when we cited an email from back in 2013 that warned us they might be coming. In that blog entry (See Notice to TOLI Trustees: Universal Life Costs ARE on the Rise), we referenced the Legal & General and Transamerica COI increases. Those increases were quickly followed by COI increases from Voya and AXA. We showed the effect of these increases in detail for both Transamerica (See Transamerica Cost Increase Causes Premium to Maturity to More Than Double: A Case Study for Trustees and AXA’s Athena II (See Taking a Look Under the Hood of the AXA Athena II Universal Life Cost of Insurance Increase) policies.
As the year came to a close, we wrote about another unprecedented occurrence, the decision of Transamerica to no longer run in-force ledgers based on current assumptions for a specific group of Universal Life policies. According to the carrier, they will only illustrate “the guaranteed future interest rate and monthly deductions” on that group of in-force policies. See Transamerica Now Making It Almost Impossible to Manage Their Life Insurance Policies. This decision makes it virtually impossible to understand the actual policy performance on those products.
The year ended with a December 21st class action filing against John Hancock Life Insurance Company (U.S.A.) for allegedly forcing policyholders to pay “unlawful and excessive cost of insurance (COI) charges,” as well as “unlawful and excessive premiums." See John Hancock Hit with Class Action Lawsuit Over Cost of Insurance In Some Universal Life Policies.
To say the landscape changed a bit this year for those of us managing life insurance policies would be an understatement. For trustees, the challenge has grown much larger, and over the next few years, I believe that those without the requisite knowledge to manage this cumbersome asset will have to reassess their TOLI business.
Each year, carriers spend millions of dollars promoting the sale of new life insurance policies, with few companies focused on maximizing the over $11 trillion of life insurance already in force. We at ITM TwentyFirst have always believed that that our job is to provide unbiased life insurance expertise to protect life insurance policy owners by helping them make informed decisions. We appreciate the trust and faith our clients have placed in us and look forward to 2016. Though there are challenges, we are excited about the additional resources we now have to manage life insurance and look ahead to the year with great anticipation.
Happy New Year from all of us at ITM TwentyFirst!