More Universal Life Premium COI Hikes Are Coming: Analyst

By Allison Bell

News March 01, 2018 at 11:22 AM

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The big life settlement investors are expecting to see life insurers imposing more waves of universal life insurance cost-of-insurance (COI) increases.

Matthew Sheridan, a consultant at QuantRes, talked about how to figure out which life insurers are most likely to ask for COI increases Monday, in New York, at a Life Insurance Settlement Association conference for life settlement investors.

For the holder of a universal life policy, the COI charge is the amount paid to support the value of the underlying death benefit, and the value of any riders or other supplemental benefits. Life insurance buyers once thought of the COI charge as a number that rarely, if ever, changed, but many life insurers have increased UL policy COI charges in recent years.

Sheridan has developed a mathematical model that suggests that life insurers are especially likely to impose COI increases on older, underpriced policies. His analysis suggests that the life insurance units at companies such as MetLife Inc. and Manulife Financial Corp. could face pressure to increase COI charges.

Sheridan said his model implies that life settlement investors may have to think more about COI increase risk when buying life insurance policies, and that investors may end up preferring different types of policies.

In the past, Sheridan said, investors have focused mainly on concerns about the accuracy of life expectancy projections, not on the life insurance premiums.

Now, "we find ourselves having to walk a line between the two," Sheridan said.

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