Higher Interest Rates Should Be Good News For Life Insurance Carriers

We have had no shortage of blog entries in the last few years regarding the problems life insurance carriers have encountered during the historic low interest rate environment.  Blog entries citing industry executives’ gloom and doom forecasts, low interest rate winners and losers, as well as blogs on cost of insurance increases and higher carrying costs that have been caused primarily by the low rates.

TRUSTEE ALERT- Why We Started An Affiliated Trust Owned Life Insurance (TOLI) Trust Company

On November 21, 2017, ITM TwentyFirst received a South Dakota charter for an affiliated trust company, the Life Insurance Trust Company, the first trust company focused solely on life insurance trusts.  On December 22, 2017 President Trump signed into law The Tax Cuts and Jobs Act with sweeping tax changes that included a doubling of the federal estate tax exemption amount to just over $11 million, lowering the number of estates affected annually by the federal estate tax from 5,000 to 1,700, less than 0.1 percent of all deaths (1).  Yet, we are extremely bullish about the prospects for our affiliated company. 

John Hancock To Raise Cost Of Insurance (COI) On Performance Universal Life Policies

In February of last year, we reported on limitations placed on inforce illustrations for John Hancock Performance universal life policies. At that time, the carrier announced a “temporary” situation, saying they were unable to provide current inforce illustrations because “regulatory standards that govern illustration practices . . . prevent us from illustrating currently payable amounts based on our current non-guaranteed elements.”

New York State Proposes “Best Interest” Standard in Sale of Life Insurance and Annuities

Last week, the New York State Department of Financial Services proposed an amendment to state insurance regulations that would, according to its December 27th press release, “adopt a “best interest” standard for those licensed to sell life insurance and annuity products.” This new amendment “would require that the product that best reflects the customer’s interest be offered ahead of what is most profitable to the seller.”

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.

The Start of Life Insurance Dividend Season

Earnings season for investors are the months that most corporations release their financial results.  Falling in the months of January, April, July, and October after the books are closed on the last quarters financials, they not only tell past performance, but in many instances, are a predictor of future earnings.  Bellwether stocks like Wal-Mart, Caterpillar and JP Morgan, offer an indication of the future performance of a market segment. 

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.

Penn Mutual Pays $110 Million Settlement in Class Action Lawsuit

Last week we reported on on a $37.5 million settlement paid by Mass Mutual Life Insurance Company for a lawsuit that alleged the carrier “was obligated to pay additional dividends on its participating policies.”  Recently, a similar lawsuit settled for a much higher sum.  Penn Mutual Life Insurance Company settled a suit for $110 million that alleged that the carrier failed “to pay the full amount of annual policy dividends out of divisible surplus that are due.”  The suit was initially filed in November of 2012 by a husband and wife who together owned 5 Penn Mutual participating whole life contracts, on behalf of them and “all persons similarly situated.” (1)