Breaking: TransAmerica UL Lawsuit

Monday, May 16, 2016
This will be very interesting to follow:

"Universal life insurance policyholders behind a multimillion-dollar class action are asking a Miami federal judge to stop Transamerica Life Insurance Co. from drastically raising their monthly charges."

Why?

Because the carrier has taken a major beating on investment income [ed: no kidding] and is raising the internal costs of its Universal Life insurance policies to make it up.

I've never written a TA UL, so I can't speak for that carrier, but I suspect that this lawsuit will gain exactly zero traction.

Why's that, you ask?

Because the nature of the UL beast is such that the carrier has a built-in CYA clause in the form of a published table of maximum rates which they're allowed to charge. Depending on how TA's plans are written, it's likely that this gives them all the "permission" they need to increase rates to that maximum. And they really have no choice: these contracts promise a minimum interest rate that is likely much higher than what the company's currently earning.

Why's that, you ask? After all, the market's been doing pretty well of late, no?

I suppose it has, but that's not terribly relevant: carriers are statutorily restricted on the kinds of investments they may make, and these tend to be very low risk (and thus low reward/interest).

It's interesting that a lot of the plaintiffs bought their plans in the 80's and 90's; one wonders about the last (or even first) time they actually read their policy's annual reports.