Indexed products see cap rate reduction
By Ron Sussman

Recently two carriers, North American and Protective Life, Announced decreased cap rates for their newly issued and in-force blocks of IUL products. This repricing of options reduces the index cap rate, and the maximum illustrated rate for index segments that are initiated or renew in 2018.

Indexed Universal Life cap and participation rates are determined by the carrier's options budget and the cost of options as determined by the options provider. These rates can be counterintuitive in a rising equities market where interest rates continue to moderate to the low side or fall.

We may be seeing the tip of the iceberg. Protective and North American are two conservative companies that tend to treat their policyholders very well. But there are many carriers in the IUL space with "black box" bonuses and aggressive options schemes that are more interested in sales volume than providing a solid customer experience. In our opinion, we are likely to see more cap and participation rate reductions in 2018 as the long low interest rate environment catches up with carrier portfolios, and the market experiences more volatility.