Study Notes and Published References - Note PDNEWS - SEAC SECONDARY GUARANTEES DEBATE

Are Secondary Guarantees Good for the Public?

Affirmative:
- Give consumer valuable option w/ no explicit charge
- cost covered by conservatism inherent in contractual guaranteed values
Negative:
- nonforfeiture law
- can lose entire no=lapse protection with a single late payment
- current legislation unable to address complex reserving issues
Affirmative Rebuttal:
- Valn Actuary law assures reserves are adequate
- Secondary Guars are voluntary, not forced
Negative Rebuttal:
- Valn Actuary law won't catch everything or we wouldn't need XXX
- One more confusing option for consumers to deal with

Are Nonf Benefits related to Secondary Guars req'd by law?

Negative:
- yes, both letter and spirit
- Letter - TX and sorta CA
Affirmative:
- SNFL does not require segmentation of policy
- UL Model Reg does not require anything add'l for secondary guars
  - UL nonf benefits based on retrospective accumulation
- if req'd, stopping payments creates a nonf cliff
Rebuttal Negative:
- nonf cliff no diff from losing an int bonus by surrending 1 month early
Rebuttal Affirmative:
- nonf cliffs would not be understood by general public and create new round of litigation nightmare

What Types of Reserves req'd for seconday guars under SAP adn GAAP acctg?

Affirmative:
- Theoretical reserve - PV of expected utilization of benefit
- GAAP - can be incorporated into F97 projections
- Stat - covered under Valn Actuary Law
Negative:
- doesn't care about GAAP
- if commish deems nonf values req'd, must be refelcted in benefit reserve
Rebuttal Affirmative:
- Actuaries need to promote ability to assess risks and establish adequate reserves
- Should not have to have situation clouded by piecemeal regulations
- Sensitivity testing is important part, including mortality if that is the primary risk factor
Rebuttal Negative:
- secondary guaranteed are valuable benefits that create significant liablity

Can we ever ignore letter of law? Can we ever ignore spirit of law?

Negative:
- NO
Affirmative:
- NO, but issue is when commissioners have discretion to "interpret" laws
- Ins laws relating to valn and nonf are out-of-date
  - not designed for modern products
- ins laws applied inconsistently between states (and w/in states sometimes)
- these grey areas will cause letter of law to to pushed to limits
- for spirit of law, take macro view

Copyright © 2004 Steve Welander.
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