The Year in Review: Trust Owned Life Insurance (TOLI) in 2017

While 2017 was another challenging year for those of us who manage life insurance portfolios, ITM TwentyFirst started the year highlighting the efficiency of life insurance in an ILIT as a preferred method of passing wealth to the next generation. In our first post of the year we cited an example of a 65-year-old couple in good health purchasing a survivorship guaranteed universal life (GUL) policy. The policy relies on a fixed annual premium paid in full and on time each year for its guarantees, but for those with the cash flow to fund the asset, the return on the death benefit is very attractive.   As seen in the spreadsheet to the right, if the death benefit was paid twenty years out (age 85) the internal rate of return (IRR) on the death benefit would be 11.36%. If it was paid 30 years out (age 95) the IRR would be 5.36%. Even at age 100, the IRR would be over 3.6%. Remember, the policy death benefit is guaranteed (if the premium is paid in full and on time), which makes these returns even more attractive when compared to other “guaranteed” investments. Yes, life insurance can be a great way to leverage assets to the next generation, but managing the asset can be difficult and this was another trying year.

Restrictions were placed on in force illustrations for a handful of carriers, which limited our ability to review some policies. In a February post we noted that John Hancock cited “regulatory standards that govern illustration practices” for limiting the illustrations on some Performance UL policies issued between 2003 to 2010. The issue stemmed from the fact that “experience has differed from the current assumptions which are reflected in the illustrations.”  In at least one instance in 2016, restrictions on in force illustrations were a direct precursor to a cost of insurance (COI) increase.

WSJ Article Highlights Interesting Cost of Insurance Case

An interesting cost of insurance (COI) increase lawsuit has been playing out over the span of two years in a Los Angeles courtroom.  The case was featured in a Wall Street Journal today as the case is set to go to trial next week.  (1)

Phoenix Announces New Cost of Insurance (COI) Increases

This week our New York City office received letters from Phoenix alerting us to cost of insurance (COI) increases on Accumulator (I, II, III, and IV) and Estate Legacy Universal Life policies.  Per the carrier, the cost increase was necessary because “certain anticipated experience factors are now less favorable than we anticipated when we established the cost of insurance rate schedule.”  According to the letters we received, there will be a flat “overall increase to cost of insurance rates, as well as progressive increases…beginning when an insured reaches age 71 through age 85.”  A Phoenix representative told us that for policies on insureds older than 85, the full increase will be implemented at once.

Another Insurance Executive Rings An Ominous Industry Bell Because Of Low Interest Rates

In the last few years we have written over 20 articles on the cost of insurance (COI) increases that have plagued the life insurance policies we manage.  The main reason for those increases?  Most would say the historic low interest rate environment that we are (still) in. In a post published just over a year ago, we listed some low rate winners and losers. When rates are historically low, the winners are the borrowers, the losers are the lenders…and who are bigger lenders than insurance companies?  They take in premium, invest it, and hopefully make enough to support future benefits. By regulation they must invest the vast majority of those premiums in fixed investments. It has been widely reported that the industry has been hurting, but this week in an article in the Financial Times, an industry executive took it a step further saying that because of “anemic” returns, the environment in the insurance industry is “unsustainable.”

Transamerica Raising Cost of Insurance (COI) On Certain Policies Issued In 1998 and 1999

We recently received confirmation from Transamerica that they are raising cost of insurance charges on their Ultra 115 and Survivorship 115 products issued in 1998 and 1999. Increases will take effect on the policy anniversary dates beginning August 1, 2017. Although illustrations are not yet available, we have learned that the increases are expected to be 58%. Updates will be posted as they become available.

Lincoln Financial Group Raising Cost of Insurance (COI) On Another Block of Policies

In May of 2016, we reported that Lincoln Financial Group, acting as administrator and reinsurer, had raised cost of insurance (COI) rates on a block of policies issued by Aetna Life Insurance and Annuity Company (now Voya Retirement Insurance and Annuity Company.) In August of the same year, we reported that they were raising COI on a block of Legend Series Universal Life policies issued between 1999 and 2007 originally issued by Jefferson Pilot (Lincoln Financial purchased Jefferson Pilot in 2006). This January, we reported that the first class action lawsuit had been filed dealing with that increase, and in May, we reported that four lawsuits, including the first one we reported on, had been consolidated in the United States District Court Eastern District of Pennsylvania.

Lawsuits Consolidated Against Lincoln National For Cost of Insurance Increase

Posted on by mbrohawn

In August of 2016 we wrote about a cost of insurance (COI) increase from Lincoln National (now Lincoln Financial Group) on a block of policies originally underwritten and issued by Jefferson Pilot from 1999 to 2007.  Lincoln Financial purchased Jefferson Pilot for roughly $7.5 billion in cash and stock in a transaction that closed in 2006.

Genworth Joins the List of Carriers Restricting In Force Ledgers

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. 

TOLI Trustees Need To Be Aware Of Life Settlements

It is estimated that every year, seniors in the US surrender or lapse over $112 billion dollars in life insurance death benefits (1). Most of them probably have no idea of their options, but grow tired of the premium payments and walk away without maximizing the value of an asset they may have paid for over a lifetime. For the uninformed consumer, this could be just a lost opportunity, for the Trust Owned Life Insurance (TOLI) trustee, this can be a source of potential liability.

Transamerica (Again) Restricting Inforce Illustrations On Certain Universal Life Policies

In November of 2015 we published a blog noting that Transamerica was no longer providing inforce illustrations with “current assumptions” on a number of universal life policies.  We pointed out the challenges that raised in managing policies without an understanding of “what Transamerica is actually charging and crediting” in the policies.