1. Policies issued by American General Life Insurance Company ("AGL“)
Actuarial Guideline 49 Guidelines for Illustrating Index Life Insurance Products
Presented by…
Trevor Keeble
Director of Product Training
A modification to Actuarial Guideline 49 (AG 49) has recently been adopted by the National Association of Insurance Commissioners (NAIC) that extends some of AG49’s requirements to all inforce IUL policies. This extension is designed to help create uniformity across all life insurance carriers illustrating IUL products and must be implemented by all companies no later than March 1, 2017.
The previously introduced initial phases of AG 49 were effective September 1, 2015 and March 1, Note that while the prior phases focused on new sales of IUL policies only, this extension of AG 49 applies to inforce IUL policies – “AG 49 Inforce.”
Policies issued by American General Life Insurance Company ("AGL“)

2. IUL In The News….
Over the last year you probably saw headlines in the news regarding IUL like some of the following. NAIC proposes rules to put restraints on IUL illustrations. A does of reality for a hot-selling insurance product. NAIC nears IUL illustration path. NAIC OKs new IUL illustration rule. Over the next few minutes we will briefly cover the current IUL marketplace, how an IUL operates and how this new Actuarial Guideline 49 will affect index life insurance illustrations going forward.

3. Value Proposition Market Upside Downside Protection
Long-Term Yield Advantage
Over Current Assumption UL
Another way to think of an IUL policy as far as the design is diagramed in this slide. We already talked about the market upside and the downside protection. But what an IUL is really designed to do is potentially out perform traditional cash value life insurance.
Downside Protection

4. Actuarial Guideline 49
NO CHANGE: American General Life’s products are not changing; this regulation will only impact how our Index Universal Life products are illustrated.
NO CHANGE: Our competitive cap rates and participation rates are not affected by the requirements of AG 49.
NO CHANGE: The potential amount of index interest that may be credited to a policyholder’s account is also not affected by AG 49.
CHANGE: The way IUL products will be illustrated will be different. Note, these changes to IUL illustrations apply to the entire industry, not just to American General Life.
The NAIC model regulation levels the playing field – that is, all life insurance sales illustrations will meet certain requirements and display information in a similar fashion. The advantage to consumers is that they will find it easier to make a fair comparison of policies. The advantage to you is that the regulation will prevent other producers from taking unfair advantage with the sales illustration tool.
NO CHANGE: American General Life’s products are not changing; this regulation will only impact how our Index Universal Life products are illustrated.
NO CHANGE: Our competitive cap rates and participation rates are not affected by the requirements of AG 49.
NO CHANGE: The potential amount of index interest that may be credited to a policyholder’s account is also not affected by AG 49. Please note the following:
CHANGE: The way IUL products will be illustrated will be different. Note, these changes to IUL illustrations apply to the entire industry, not just to American General Life.

5. IUL History
Transamerica Occidental Life Insurance Company rolled-out the first-ever Index UL in January of 1997 – in response to rising market conditions and the growing popularity of the similarly-structured index annuity, introduced just two years prior.*
Index Universal Life’s design was identical to that of traditional UL (which was developed in the 1970’s), but offered the purchaser the ability to earn limited interest based on the performance of a stock market index (without being subject to the losses of the stock market itself).*
Now a little history on IULs.
Transamerica Occidental Life Insurance Company rolled-out the first-ever Index UL in January of 1997 – in response to rising market conditions and the growing popularity of the similarly-structured index annuity, introduced just two years prior.
Index Universal Life’s design was identical to that of traditional UL (which was developed in the 1970’s), but offered the purchaser the ability to earn limited interest based on the performance of a stock market index (without being subject to the losses of the stock market itself).
*Source: Sheryl J. Moore’s NAIC Comment on IUL Illustrated Rates November 5, 2014 Article

6. Index UL Market Overview
IUL Production Has Shown Growth In The Last Decade
Third Quarter IUL sales were $452.9 million, compared with sales of $478.6 million for the third quarter of When evaluating third quarter IUL sales, results were up nearly 3.0% when compared with the previous quarter, and down over 5.0% when compared to the same period last year.
Source:

7. The clients dollars are not invested in the stock market.

8. Interest Crediting
Before we dive into the new guidelines let’s first talk about how interest credits are determined in an index universal life policy.

9. Index Strategies
An index strategy uses a formula that calculates interest based in part on the movement of a stock/bond market index, such as the S&P 500 Index. Index UL has different index strategies where clients can direct their money in an effort to take advantage of positive movements in a stock market index.
What is an index strategy?
An index strategy uses a formula that calculates interest based in part on the movement of a stock/bond market index, such as the S&P 500 Index.
Index UL has different index strategies where clients can direct their money in an effort to take advantage of positive movements in a stock market index.

10. Evolution of Index Life
Crediting Strategies
Annual Point-to-Point
Daily Averaging
Inverse Term End Point
Monthly Averaging
Monthly Point-to-Point
Performance Triggered
Term End Point
Two Year Point-to-Point
Five Year Point-to-Point
Read directly from slide.

11. Index Options Currently Available
10-Year Constant Maturity Treasury Note
Barclays Bond Index
Barclays US Dynamic Balance Index
Dow Jones-UBS Commodity Index
Euro Stoxx 50
Hang Seng
MSCI EAFE
MSCI Emerging Markets
NASDAQ-100
Russell 2000
S&P 500
S&P 500 Global (BMI)
S&P MidCap 400
S&P Total Return Index
ML Strategic Balanced Index*
The index interest crediting features on IUL products have also changed from initially using only the S&P 500 as a benchmark for index interest crediting; where today 15 different stock market, bond, and commodities indices are used.
*Not available in New York.
Current as of 2/24/2015

12. Declared Interest Account Index Interest Account with Cap Rate
Crediting Options
Declared Interest Account
Index Interest Account with Cap Rate
Index Interest Account with Participation Rate
Index Interest Account with Spread
Typically, an IUL product utilizes only one pricing lever on each index crediting method offered. Meaning, that although the typical IUL product has three different index crediting method choices, in addition to a fixed crediting method option (which performs similarly to a traditional fixed UL), one method may use a participation rate as the “moving part”, another may use a cap rate. And finally an index strategy could use a spread.

13. Actuarial Guideline 49 Maximum Illustrated Rate

14. 1. Rules for maximum illustrated rates
– effective 9/1/2015
AG 49 limits the maximum illustrated rate a carrier may show in an index universal life insurance illustration. This max rate will now be calculated based on a specific lookback approach that all insurers must use.
The approach takes all 25-year lookback periods over the last 66 years. The new max rate will vary depending on each product’s cap rate, participation rate, floor, and index account design.
The first change that the guideline requires are new rules for maximum illustrated rates. Which is effective 9/1/1015.
AG 49 limits the maximum illustrated rate a carrier may show in an index universal life insurance illustration. This max rate will now be calculated based on a specific lookback approach that all insurers must use.
The approach takes all 25-year lookback periods over the last 66 years. The new max rate will vary depending on each product’s cap rate, participation rate, floor, and index account design.

15. 1. Rules for maximum illustrated rates
– effective 9/1/2015
The purpose of this change is to place more consistent limits around how insurers illustrate interest credited on IULs with the goal of more fairly depicting how these products may perform for the end consumer.
The purpose of this change is to place more consistent limits around how insurers illustrate interest credited on IULs with the goal of more fairly depicting how these products may perform for the end consumer.

16. Actuarial Guideline 49 Policy Loans

17. How It Works Participating Loan $200,000 Current
Index or Fixed Account Interest
Loan amount still in account - full cash value remains
$20,000
Loan
$200,000
Here we are starting with same index life insurance policy as in the previous example with a current cash value of $200,000. Once again this policyholder decides to take out a $20,000 loan. But this time they are taking a Participating loan. The major difference is that the $20,000 Participating loan is not removed from the cash value and is still earning index interest. The rate than that is charged is a fixed rate of 5%. Which can result is positive or negative net cost.
Index Interest Credited
Current
Charge
5.00%
Cash Value
Positive or Negative
Net Cost

18. 2. Policy Loans
– effective
AG 49 will limit the interest rate differential that can be illustrated between the interest rate credited to loaned amounts and the corresponding loan rate that is charged to that balance (sometimes referred to as “loan leverage” or “loan arbitrage”).
If the illustration includes a policy loan, the illustrated rate credited to the loan balance cannot exceed the illustrated loan charge by more than 1%.
The next change is in regards to policy loans. This change does not go into effect until 3/1/2015.
AG 49 will limit the interest rate differential that can be illustrated between the interest rate credited to loaned amounts and the corresponding loan rate that is charged to that balance (sometimes referred to as “loan leverage” or “loan arbitrage”).
If the illustration includes a policy loan, the illustrated rate credited to the loan balance cannot exceed the illustrated loan charge by more than 1%.

19. How will this change affect American General Life’s IUL products?
American General Life’s IUL products offer a participating loan which currently charges a 5% loan rate.
AG 49 will now limit the max illustrated rate that could possibly be credited to the loaned balance to 1% more than the 5%, which results in 6% in this example, or the stated policy maximum illustrated rate if it is lower.
Illustrations also include a mandatory ledger at an alternate 5% illustrated rate.
American General Life’s IUL products offer a participating loan called which currently charges a 5% loan rate.
AG 49 will now limit the max illustrated rate that could possibly be credited to the loaned balance to 1% more than the 5%, which results in 6% in this example, or the stated policy maximum illustrated rate if it is lower.
Illustrations also include a mandatory ledger at an alternate 5% illustrated rate.

20. Actuarial Guideline 49 Illustration Disclosures

21. 3.) New illustration disclosures
– effective
A ledger illustrated at the fixed account interest rate.
If the illustration includes a loan, the illustrated rate credited to the loan balance cannot exceed the illustrated loan charge. In other words, no loan arbitrage can be shown.
3.) Effective , AG 49 will require three new illustration disclosures with the goal of helping the client better understand how IUL works and how product performance may vary over time.
A ledger illustrated at the fixed account interest rate. If the illustration includes a loan, the illustrated rate credited to the loan balance cannot exceed the illustrated loan charge. In other words, no loan arbitrage can be shown.
A table showing the minimum and maximum of all the 25-year lookback rates that were derived under the new maximum illustrated rate calculation as described in #1 above.
A table showing actual historical performance over the most recent 20-year period for each index account illustrated along with the hypothetical interest rates that would have resulted based on the product’s cap, participation and floor rates.
How will all of these changes affect American General Life’s IUL products? Our goal at American General Life is to provide IUL products and illustrations that focus on our customers’ needs while fully complying with all applicable rules.

22. 3.) New illustration disclosures
– effective
A table showing the minimum and maximum of all the 25-year lookback rates that were derived under the new maximum illustrated rate calculation.
A table showing the minimum and maximum of all the 25-year lookback rates that were derived under the new maximum illustrated rate calculation.
A table showing actual historical performance over the most recent 20-year period for each index account illustrated along with the hypothetical interest rates that would have resulted based on the product’s cap, participation and floor rates.
How will all of these changes affect American General Life’s IUL products? Our goal at American General Life is to provide IUL products and illustrations that focus on our customers’ needs while fully complying with all applicable rules.
Hypothetical Example

23. 3.) New illustration disclosures
– effective
A table showing actual historical performance over the most recent year period for each index account illustrated along with the hypothetical interest rates that would have resulted based on the product’s cap, participation and floor rates.
A table showing the minimum and maximum of all the 25-year lookback rates that were derived under the new maximum illustrated rate calculation.
A table showing actual historical performance over the most recent 20-year period for each index account illustrated along with the hypothetical interest rates that would have resulted based on the product’s cap, participation and floor rates.
How will all of these changes affect American General Life’s IUL products? Our goal at American General Life is to provide IUL products and illustrations that focus on our customers’ needs while fully complying with all applicable rules.

24. Actuarial Guideline 49 New Inforce Guidelines

25. New rules for illustrating inforce IUL policies under AG 49 Inforce:
Rules for maximum illustrated rates – effective 3/1/2017
AG 49 Inforce limits the maximum hypothetical interest rate a carrier may show in an Index Universal Life insurance illustration. This max rate will now be calculated based on a specific look back approach that all insurers must use.
The approach takes all 25-year look back periods over the last 66 years and will vary depending on each product’s cap rate, participation rate, floor, and index account design.
Rules for maximum illustrated rates – effective 3/1/2017
AG 49 Inforce limits the maximum hypothetical interest rate a carrier may show in an Index Universal Life insurance illustration. This max rate will now be calculated based on a specific look back approach that all insurers must use.
The approach takes all 25-year look back periods over the last 66 years and will vary depending on each product’s cap rate, participation rate, floor, and index account design.

26. New rules for illustrating inforce IUL policies under AG 49 Inforce:
The purpose of this change is to place more consistent limits around how insurers illustrate interest credited on IULs with the goal of more fairly depicting how these products may perform for the end consumer.
This approach to determining the maximum hypothetical illustrated interest rate is the same approach that was implemented on new sales in phase 1 of AG49 in September of 2015.
The purpose of this change is to place more consistent limits around how insurers illustrate interest credited on IULs with the goal of more fairly depicting how these products may perform for the end consumer.
This approach to determining the maximum hypothetical illustrated interest rate is the same approach that was implemented on new sales in phase 1 of AG49 in September of 2015.

27. New rules for illustrating inforce IUL policies under AG 49 Inforce:
American General Life intends to launch AG 49 Inforce changes on February 24, Any inforce illustrations run after that date must comply with the new AG 49 limits on the maximum hypothetical illustrated interest rate.
Our goal at American General Life is to provide IUL products and illustrations that focus on your customer’s needs while fully complying with all applicable regulations.
Because of this change to the historical calculation, you will likely see a reduction in the maximum illustrated interest rate allowed for illustrating an inforce IUL ledger.
Re-projections of policies sold prior to the introduction of AG 49 limits on the maximum illustrated interest rate may not be as favorable as originally illustrated.
Impact of AG 49 Inforce:
American General Life intends to launch AG 49 Inforce changes on February 24, Any inforce illustrations run after that date must comply with the new AG 49 limits on the maximum hypothetical illustrated interest rate.
Our goal at American General Life is to provide IUL products and illustrations that focus on our customer’s needs while fully complying with all applicable regulations.
Because of this change to the historical calculation, you will likely see a reduction in the maximum illustrated interest rate allowed for illustrating an inforce IUL ledger.
Re-projections of policies sold prior to the introduction of AG 49 limits on the maximum illustrated interest rate may not be as favorable as originally illustrated.
We recommend that agents discuss any potential changes to IUL inforce illustrations with their customers.

28. Current Participation Rate or Index Cap
Rate Change Example
Product
Current Participation Rate or Index Cap
Old Rate
New Rate
AGLAchoice
Index Plus
70%
8.14%
6.41%
QoL Index Plus II
10%
6.62%

29. In Review….Actuarial Guideline 49
NO CHANGE: American General Life’s products are not changing; this regulation will only impact how our Index Universal Life products are illustrated.
NO CHANGE: Our competitive cap rates and participation rates are not affected by the requirements of AG 49.
NO CHANGE: The potential amount of index interest that may be credited to a policyholder’s account is also not affected by AG 49.
CHANGE: The way IUL products will be illustrated will be different. Note, these changes to IUL illustrations apply to the entire industry, not just to American General Life.
And finally let us review the AG 49 changes and what changes are now in affect.
NO CHANGE: American General Life’s products are not changing; this regulation will only impact how our Index Universal Life products are illustrated.
NO CHANGE: Our competitive cap rates and participation rates are not affected by the requirements of AG 49.
NO CHANGE: The potential amount of index interest that may be credited to a policyholder’s account is also not affected by AG 49. Please note the following:
CHANGE: The way IUL products will be illustrated will be different. Note, these changes to IUL illustrations apply to the entire industry, not just to American General Life.

30. Questions
All new applications submitted on or after September 1, 2015 will automatically receive the new rates.
•Any pending case approved on or after September 1, 2015 will require an updated illustration with new rates.
•Index Plus II cases issued other than applied or no illustration submitted with the application: Submit matching illustration (with new rates) to home office prior to issue and policy contract printed

31. Important Information
Policies issued by: American General Life Insurance Company (AGL), 2727 – A Allen Parkway, Houston, Texas The United States Life Insurance Company in the City of New York (US Life), One World Financial Center, 200 Liberty Street, New York, New York The underwriting risks, financial and contractual obligations and support functions associated with the products issued by AGL or US Life are the issuing insurer’s responsibility. US Life is authorized to conduct insurance business in New York. Guarantees are subject to the claims – paying ability of the issuing insurer. Policies and riders not available in all states. AGL and US Life are member companies of American International Group Inc., (AIG). AIG does not underwrite any policy described herein. Policies and riders not available in all states. These product specifications are not intended to be all-inclusive of product information. State variations may apply. Please refer to the policy for complete details. Important: Prior to soliciting business, be certain you are appropriately licensed and appointed with the insurer and that the product has been approved for sale by the insurer in that state. If uncertain, contact your AIG Life Insurer or American General Life Insurance Company representative for assistance.
AGLC109059
2017 American International Group, Inc. (AIG). All rights reserved. 31

32. American International Group, Inc
American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries.. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange.
Additional information about AIG can be found at | YouTube: | | LinkedIn:
AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website at All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds.