Portfolio Construction
The Insurance Banking® Report identifies optimal construction for a portfolio of "best-of-breed" life insurance products based on different portfolio investment allocations. Portfolio constructions can either reflect the minimum total premiums required to maintain level policy death benefits under Defined Death Benefit, Minimum Premium plan designs or the maximum cash value accumulations for a given planned premium contribution under Maximum Accumulation, Defined Contribution plan designs. Insurance Banking® Report results can also be based on either published, non‑underwritten assumed cost of insurance (COI) charges and policy expenses, or on fully-underwritten, actual cost of insurance (COI) charges and policy expenses. In either case, Insurance Banking® Report results also contemplate diversification among a number of insurers that depend on the size of each given portfolio.
In addition, while cost of insurance (COI) charges and policy expenses are determined by the insurers underwriting the risks, the policy interest/earnings rate at which future COIs and expenses are discounted is determined by invested assets underlying policy cash values. As such, the following portfolio constructions reflect premiums calculated using discount rates corresponding to the following investment strategies; Portfolio A) historical returns corresponding to a balanced portfolio of equity and debt securities, Portfolio B) below‑historical rates of return corresponding to a "conservatively‑managed" portfolio, Portfolio C) historical rates of return for a regulated portfolio of high‑grade corporate bonds and government‑backed mortgages, and Portfolio D) guaranteed rates.
Portfolio Construction
Insurance Banking® Reports reflect the "best-of-breed" products available from roughly 500 insurance companies (at last count) selling more than 1,000 life insurance products in North America. As is the case with other financial instruments, different life insurance products are designed for different market segments and different planning objectives. Thus, "best-of-breed" products are identified by measuring the empirical qualities of each using the objective, rules‑based and patented (U.S. Patent #6,456,979) Confidential Policy Evaluator (CPE) system and assigning a 5-star rating for each of the below five (5) factors of suitability in which a full star indicates the highest comparative rating, a half star indicates a median rating, and an empty star represents the lowest rating:
Financial Strength & Claims-Paying Ability Ratings: Because financial strength and claims‑paying ability ratings identify both those insurers most likely to pay the death claim many years into the future, and those insurers less likely to increase pricing to gain/restore financial strength, products underwritten by insurers with high ratings for financial strength and claims‑paying ability are considered more suitable than products from insurers with low ratings, when all other factors are equal.
Cost Competitiveness & Pricing Style: Because different products are designed for different market segments (i.e., retail, institutional, experience‑rated) and different funding strategies (i.e., minimum total premium, minimum annual outlay, maximum liquidity, etc.), and because premium requirements are determined by the pricing style and overall cost structure for each policy, products designed to perform optimally for a given funding strategy are considered more suitable than products with higher premiums/costs, when all other factors are equal.
Pricing Stability: Because premiums are ultimately determined by the overall actual cost structurefor each policy, and because each insurer determines actual policy costs annually, products whose pricing is more stable overtime are considered more suitable than products where pricing more likely to change over the life of the policy, all other factors being equal. Pricing for all life insurance policies is a function of three (3) variables: 1) cost of insurance (COI) charges, 2) policy expenses, and 3)the interest/earnings rate used to "discount" future COIs and policy expenses. Pricing of COI charges and policy expenses is set annually by the insurer, and generally based on actual claims and operating experience (rather than statutory guarantees which are the same/similar for all products for regulatory reasons), to the extent an insurer can control these costs.
Relative Policy Value: Policies that offer higher cash values and more liquidity are considered more suitable than those that offer lower cash values and less liquidity, when all other factors are equal. While policies offering maximum liquidity (i.e. policies with cash values approaching 100% liquidity) may includehigher costs/premium, policies with high relative liquidity are considered more suitable then policies with lower cash values and/or limited access to policy cash values.
Cash Value Allocation Options: Because actual policy pricing and portfolio performance will ultimately be determined by the actual performance of the invested assets underlying policy cash values, products whose cash values are invested in assets with historically higher performance are considered more suitable than products invested in historically inderperforming assets, when all other factors are equal. As such, Insurance Banking® Reports can include both "best of breed" products whose cash values are regulated to be invested in of high-grade corporate bonds and government backed mortgages and that have produced historically higher net portfolio yields, and/or "best of breed" products whose cash values can be managed among a family of mutual-fund-like subaccounts, more funds with historically higher performance, more investment styles, and lower expense ratios.
Sample Report in PDF Format
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