AG 38 Transition Rules & Dates
What is AG38?
AG38 stands for Actuarial Guideline 38. It was established by the National Association of Insurance Commissioners to define the statutory reserve requirements for universal life products with secondary guarantees. Secondary guarantees are generally minimum premium requirements that will keep the policy in force, even if the cash surrender value (CSV) falls below zero. So, the CSV is the primary gurantee, and the minimum premium requirement is the secondary guarantee.
Why is AG38 being modified?
Some carriers have developed products with designs that regulators feel violate the intent or spirit of the AG38 requirements. These designs develop lower statutory reserves than AG38 was intended to produce. The AG38 changes that go into effect on January 1, 2013, include design and charge structure requirements intended to remedy this.
What is the expected impact of AG38?
Several secondary guarantee market share leaders have already increased prices or announced price increases. AG38 changes will force some companies to restructure their product designs in order to continue to offer a competitive product without incurring significant capital strain. Some companies will need to file changes with state insurance departments or the interstate compact, which may result in delays or even temporary departures from the market.
When will changes occur?
- All policies issued by 12/31/2012 will be issued under the old, lower rates.
- Applications received by 12/31/2012 but approved in 2013 will result in a choice for the applicant.
- Accept the higher 2013 rates with a current date
- Accept an offer to backdate the policy to 2012 using old, lower rates, but with a requirement to pay back (planned, illustrated) premiums on delivery. This option will also require a disclosure to be signed.
- Applications received in 2013 will result in policies issued under the new, higher rates, even if backdated to save age to 2012.
About IMS Associates
IMS Associates Financial & Insurance Services has been providing innovative solutions to the Life Brokerage community since 1986. Headquartered in Orange County, CA and licensed in all 50 states, we are a one-stop Brokerage General Agency (BGA) assisting you with all of your Life Insurance, Annuity, Long-Term Care, and Life Settlement needs.