Actuarial Guideline 38 (AG 38) – What Does It Mean?

I was sitting down to write about AG 38 and it occurred to me that I had just sent an email to some new clients and their professional advisors which would sum things up in a non-technical way as easily as anything else I could write. Below is simply an excerpt of that note.

I feel it is important that you and your clients not be railroaded into action through scare tactics but it is equally important to understand that what agents and other advisors in the market are saying may have significant merit.


The main reason for writing is to bring up something on which I want to tread lightly but it is very real. I may or may not have discussed with you some regulatory changes affecting the life insurance industry. This is Actuarial Guideline 38 or AG 38 for short. AG 38 was introduced in 2003 to clarify Valuation of Life Insurance Policies Regulation commonly referred to as Regulation XXX . The bottom line is that the National Association of Insurance Commissioners (NAIC) has amended guidelines for reserving requirements for life insurance companies, and retroactively at that. This may be the most significant change in regulations since Regulation XXX effective in 2000. Do you need information on insurance and how to efficiently get them?

The effect of the regulation is that the product and pricing changes in the market now are creating a carnival like atmosphere for players in the industry. Products are being pulled, deadlines are being set, premiums are being changed, etc. on a rapid and ongoing basis. The effect on new policies is that premiums in general are increasing meaningfully. Although a few carriers state they are currently in compliance, it is difficult to state with any certainty which carriers will be offering which products at what pricing as of January 2013. The deadlines to get in under the wire for the changes are fast approaching or have already passed. You can also go to the website here to understand how one can make sure to save energy and money.

Over the history of the insurance industry pricing has been coming down and for more years than almost anyone thought it would. Only in retrospect can we see when the bottom of the market was and in general it was 2009-2010. For a long time, the first companies to come to the market with new products and pricing were inundated with new business because they were the most competitive. Now the last company to change is in that boat as the pricing curve is going up. The new regulation is simply steepening that curve.

Now here is the tricky part. There is no way I can bring this up without sounding terribly salesy and gimmicky but, to the extent either of you decide to act, the sooner you do, the more financially advantageous it will be for the rest of your lives. By no means should this be used to rush the process and make decisions which are not well thought out but to the extent it can be used to create a sense of urgency, it may benefit you greatly. With the products we will likely be focusing on, or which at least will be in the mix, once the trigger is pulled, the premiums are locked in and can not be changed.

Just within this past month I have been working on a significant case and a decision could not be made in time and the most competitive option on the table could not be taken advantage of. The premium for that product increased 40%. The good news is that there are other market alternatives available but the best of them are still 10% greater than we could have locked down had we been able to get our ducks in a row sooner. This increase in premiums represents a net present value of six figures.

It is in your court as to whether or not you want to allow this information to play at all in your decision making but it would be reckless for me to not bring it up only to see deadlines pass and leave very attractive options in the rear view mirror.


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