The life insurance industry is experiencing a type of “perfect storm” with respect to changes that have the potential to bring about great opportunity for 2019. Two highly significant regulatory requirements, the 2017 CSO Mortality Table and Principle-Based Reserves, are coming right on the heels of the Tax Cuts and Jobs Act of 2017, all likely impacting life insurance products and pricing.
What does this mean for you and your clients?
2019 is the year to stay informed and aware of changes occurring in various products. Thankfully, DBS is on your side and equipped with a team of Case Design Analysts who track these changes and use this information to make recommendations on the solutions that might be right for all your different client needs. Here’s
what they’re watching:
Principles-Based Reserves (PBR)
Under PBR, insurers will be required to hold the higher of (a) reserves using prescribed factors or (b) reserves which consider a wide range of future economic conditions, and is computed using justified insurer experience factors specific to an insurer, such as mortality, policyholder behavior and expenses. One phase has already been implemented and another one goes into effect 1/1/2020, requiring a higher level of reserves on all guaranteed products – increasing pricing. Bottom Line: Changes will vary tremendously by carrier, so we can’t make any “one size fits all” predictions.
Tax Cuts and Jobs Act of 2017 (TCJA)
Term financials are significantly impacted by the passage of the Tax Cuts and Jobs Act of 2017 (TCJA). Bottom Line: All competitive term carriers will likely be impacted, albeit each of them will have a different starting rate of return.
2017 CSO Mortality Table
The new CSO tables also must be incorporated into products by 1/1/2020. As the life expectancy has gone up, it will impact all product pricing, though some products may see a slight decrease in COIs. The largest impact is on accumulation products as the minimum face amount for a given premium will go up. Bottom
Line: It is estimated the increase could be 10%, making accumulation sales less appealing.
Price changes vary by product and carrier
Effect on pricing is both product and company specific and depends on assumptions and margins. This makes it difficult to define a general rule as to whether this is good or bad news about pricing, and most carriers are in unique individual positions based upon their past choices (e.g., whether they utilized reserve financing; whether they have already shifted pricing or not; etc.). Bottom Line: DBS is tracking product and pricing changes, so you don’t have to! Count on us to keep you
informed throughout the year.
2001 CSO Tables vs. 2017 CSO Tables
In 2001 the new CSO tables improved significantly and guaranteed products improved. However, the changes in the in 2017 were much less significant, resulting in minimal improvements. Bottom Line: The changes that will likely occur depend largely on the product type, along with the carrier position.