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December, 2013

December, 2013. Overview of Life Insurance Crediting Rates. Name Title. M Financial Group.

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December, 2013

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  1. December, 2013 Overview of Life Insurance Crediting Rates Name Title

  2. M Financial Group • M Financial Group is one of the nation’s premier financial services design and distribution companies, serving ultra-affluent individuals and Fortune 1000 companies through a network of more than 135 independent Firms. • Independent research suggests that more than 20% of all life insurance sales to ultra-affluent clients in the U.S. are made by M Member Firms. (Source: Spectrem Group) • M Financial was founded in 1978 to change how insurance companies served successful producers with exceptional business. • From the beginning, M Financial has been a community of sharing, entrepreneurship, innovation, and success. • M Financial began with 13 Firms—today there are more than 135 Member Firms in 36 states, Canada, the United Kingdom and more than 600 producers.

  3. Major Business Lines • Life Insurance • Wealth Transfer / Estate Planning • Executive Benefits • Institutional Market • Individual Disability Income and Long Term Care Insurance • Annuities • Corporate Benefits • Group Life, LTD, and LTC • 401(k) • Wealth Management Life and DI lines are reinsured through M Financial Re.

  4. UL Crediting Rate Considerations • Insurers invest in high-quality bonds and mortgages (Aaa and Baa) • New money fixed income rates have generally declined for 25+ years • Portfolio yields lag new money rates and continue to drop • Continued downward pressure on UL crediting rates which are tied to portfolio yields • Portfolio crediting rates will continue to drop even if new money rates gradually increase due to lag factor

  5. Decline In Historical New Money Rate Note approximate 100 bps rate increase over last year

  6. Rolling Average Represents Portfolio Yield, Lags New Money, Continues To Drop

  7. Strong Correlation Between UL Crediting Rates And 5 Year Rolling Average

  8. Continued Downward Pressure On Crediting Rates Even With Recent Increase In New Money Rates • The current benchmark new money rate is approximately 50 bps below the portfolio yield benchmark • Carriers have been shifting asset allocations to Baa in order to obtain additional yield • Carriers have also been investing further out on the yield curve in order to obtain yield • The portfolio yield and crediting rates will continue to merge to the new money rate

  9. There Will Be Continued Portfolio Yield Drops Even If New Money Rates Increase Due To Lag Factor • Assumes new money rate increases 50 bps in next year • Projected portfolio yield continues to drop for two years before increasing • Maximum projected cumulative drop is 40 bps

  10. Declining Crediting Rate Implications • Carrier Actions: current and guaranteed crediting rate reductions and premium restrictions • New Business Policyholder Implications • Fund appropriately (i.e., with conservatism) • Run downside scenarios (i.e., lower crediting rates) to assess appropriate funding • In-Force Business Policyholder Implications • Perform annual reviews • Use in-force illustrations to assess impact of lower crediting rates (include scenario testing) • Take appropriate action to keep the policy on track • Additional premiums • Reduce face amount • 1035 exchange

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