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Minnesota Life’s Eclipse EIUL June 16, 2011

Posted by shaferfinancial in Finance.
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For the 1st quarter of 2011 the EIUL from Minnesota Life was #1 in sales.
Why? Perhaps people are starting to really understand how well it performs.
This historic analysis points it out:

The analysis looked at 30 years of historic data. That ran 20 year and 1 year rolling month analysis.
This means they looked at all the possible 20 year and 1 year returns starting every month for the last 30 years. This assumed the current 15% cap.

Percentage of 20 year period that exceeds 7.5% = 100% Percentage of 1 year periods that exceed 7.5%= 60%
Percentage of 20 year period that exceed 8% = 97%. Percentage of 1 year periods that exceeds 8%= 59%
Percentage of 20 year periods that exceed 8.5% = 81%. Percentage of 1 year periods that exceeds 8.5%= 57%
Percentage of 20 year periods that exceed 9% = 51%. Percentage of 1 year periods that exceeds 9%= 56%
Percentage of 20 year periods that exceed 9.5% = 29%. Percentage of 1 year periods that exceeds 9.5%= 54%
Percentage of 20 year periods that exceed 10% = 7%. Percentage of 1 year periods that exceeds 10%= 52%

We all know that statistics are just numbers that can be manipulated, but historically you had about a 50/50 chance of getting a 9% average credit for 20 years and a 97% chance of getting a 8% return!
Good odds if you ask me!

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Comments»

1. Steve - June 27, 2011

Was your analysis done net of costs, or solely based off close prices? That is, if I put $1 into an EIUL, and the SP500 closed up 10% at the end of the year, I would not have $1.10. I would have less, due to the cost of insurance and various other fees in the EIUL. It is a little misleading to say “97% chance of getting a 8% return,” because return implies “net” inclusive of all costs.

Thanks for the clarification.

shaferfinancial - June 27, 2011

No, the analysis concerns the interest credit only. The expenses generally total between .5% and 1.5% depending upon age and premium payment structure. I always offer expenses and internal rate of return charts to my clients which outlines all the expenses and the life insurance coverage. This is a life insurance product after all and one of the benefits is the life insurance component making this a self completing financial plan! For those serious about discussions on this product a set of illustrations with all the above is the starting place for understanding how this product works.

2. samuelsondesign - July 1, 2011

I think you’d find my white paper on Indexed UL to be pretty interesting.

http://www.samuelsondesign.com/html/resources.html

shaferfinancial - July 3, 2011

Interesting stuff. “Inside Baseball” information is great to see and digest. My analysis looks at a very different level, that is how has it performed in the past and what the expenses are in the policies now compared to its peers. Your dissertation on risk is well taken, but when you compare the actual performance of Pacific Life to ML and you see more expenses and much poorer performance I need to give that priority in my analysis. Thanks for a differing opinion though. How much weight do you give to the financial stability of companies [Comdex ratings] which allows us to see how strong they are and how good their decision making has been in the past?

3. samuelsondesign - July 5, 2011

Actual performance? Aviva is the only carrier that has released any information on the actual performance of an in-force block of Indexed UL business (and, for the record, it shows the Indexed UL product performing at almost exactly the same level as a traditional Fixed UL over the same period). Pacific Life does have more charges early on but less than Minnesota Life in the later years. The impact of the charges depends on the policy funding pattern, but Minnesota Life is much more expensive on a cumulative basis through A100 (see the Appendix section of my paper).

I think Comdex is a good first-blush look at a carrier but I think it misses many of the nuances that ALIRT gets. Writing life insurance is like building a house on stacks of dynamite – everything looks fine until something blows up. I don’t think rating agencies do a good job of figuring out who has the most dynamite in the foundation and what’s going to make it blow. Instead, they tell you how the explosion is going. What’s your take?

4. shaferfinancial - July 5, 2011

When I say actual performance I am referring to the performance for clients from the policy structured as I do for them. I understand your analysis and you are looking at it from a higher level than I do. Great information, thanks much. I got much of this information from an underwriter at ML a couple of years ago. They made their decisions deliberately trying to give customers who minimize the LI better performance.

Ultimately, the companies with solid financial footing can withstand “explosions” as they did during the 2006-2008 “explosion”. I guess I am less a pessimist than you, but that is fine. I see a product and companies that made it through the worst financial environment since the GD and that gives me comfort.
By the way, my AVIVA EIUL has not performed as well for me as the ML EIUL over the last 6 years I have owned it. Now past performance is no indication of future performance, but from a policy owner perspective that it very important to me. But both the ML and AVIVA policies are performing as the companies said they would.

And of course I illustrate these policies 10% or so below their historic average to have a margin of safety and to not provide a overly rosy illustration for clients. Thanks again for the posts and information.

samuelsondesign - July 5, 2011

Of course, I always enjoy robust discussion.


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