C.3 AG 49 Flashcards
1
Q
Goals of AG 49
A
- provide guidance in determining a max illustrated index credit rate and earned IR for the disciplined current scale DCS
- Limit the amount of policy loan leverage for Par Loans
- Require additional disclosures
2
Q
benchmark index account BIA
A
AG 49 defines a max illustrated index credit rate based on a 25 year backcasting formula using BIA
BIA = 1 yr PTP index account on SP 500 excl divs
- annual return cap based on company’s IUL product
- assume 100% participation
- assume 0% floor
3
Q
Understand the process for developing the maximum Index illustrated credit rate MIICR
A
backcasting methodology. really long and complicated, not writing it all out lol
4
Q
Understand the purpose of the disciplined current scale
A
- use DCS in in the self support test and lapse support test
- illustrations with NGEs can only be provided if the policy passes both tests
5
Q
Treatment of Par policy loans
A
- IUL policy loan where the AV backing the policy loan earns index based interest, while the policy loan is FIXED.
- if the policy loan rate < index rate then the illustration will show a borrowing advantage
-AG 49: limit the difference in rates to 100 bps
6
Q
additional disclosures required by AG 49
A
companies must provide the following 3 disclosures:
- Alternative scale illustration
- shows the PH the sensitivity to assumed credited rate and any policy loan average - Max and min values of the geometric returns in the MIICR calcs
- Table showing the last 20 years of actual index changes side-by-side with what the company IUL credit IR would have been over the same period
7
Q
Industry reaction and impact of AG 49
A
- SP indexes will become more popular
- hedging will become less of a competitive advantage
- Participation rate products will become less popular than capped products, since BIA always uses 100% participation
- Persistency bonuses will get bigger
- companies may use higher loads to offset artificially high caps
