John Hancock Protection UL 11

Transcription

1 John Hancock Protection UL 11 Return and Risk in Innovation Bobby Samuelson SamuelsonDesign 6/24/11 Abstract Protection UL 11 combines the two traditional elements of Current Assumption UL pricing, policy expenses and crediting rate, with a formula-driven Persistency Credit to create a cocktail of hyper-competitive premiums and outsized sensitivity risk. Its innovative structure is poised to potentially reinvent pricing practices in the UL market. This paper explores the pricing nuances of Protection UL 11 and the Persistency Credit, discusses new risks and returns provided by the structure and makes recommendations on illustration practices for producers. Comments made about Protection UL 11 pricing also apply to Protection SUL 11 pricing. Outline 1. Protection UL 11 in Context The Performance Line (PUL 2008, PUL 2009 and PUL 2010) 2. Protection UL 11 Pricing 3. Persistency Credit Language 4. The Purpose of the Persistency Credit 5. Persistency Credit Pricing 6. Mitigating Protection UL 11 Sensitivity Risk 7. Recommendations on Product Application and Illustration 8. Common misconceptions a. The Persistency Credit is like a Participating Dividend b. The Alternative Assets backing Protection UL 11 inject risk into the product 9. Technical Comments a. Performance UL 2008 pricing b. Performance 2009 & 2010 Pricing

2 Disclosure All words herein are solely mine unless specified otherwise. I did not receive any compensation from any party, directly or indirectly, for authoring and publishing this piece. This white paper is for open distribution.

3 Annual Charges/Credits Protection UL 11 in Context The Performance Line (PUL 2008, PUL 2009 and PUL 2010) Protection UL replaces the Performance UL line of products that was traditionally geared towards death benefit protection with a relatively unique value proposition. Performance UL provided the worst cash value accumulation in the industry in exchange for the lowest level pay premium solves based on current assumptions. It achieved this goal through a relatively flat policy cost structure, charging relatively more than its competitors in early years (and thereby restricting cash value growth) and much less in later years. Lower mortality in later years opened John Hancock to potential exposure if clients decided, en masse, to take advantage of lower policy charges by funding the policy at the minimum limit. Performance 2009 introduced a little-known tweak to policy pricing that substantially reduced funding pattern risk for John Hancock via a Policy Credit. The base policy charges of Performance 2009 increased substantially but were offset by the Policy Credit. The schedule for net deductions from policy values looked almost identical to Performance 2008 and, consequently, illustrated performance was also virtually identical. The Policy Credit was designed to disappear if policyholders funded the contract below a certain, non-specified limit. The policyholder would be left with substantially higher net charges than originally anticipated. The net effect for the average Performance 2009 policyholder was reduced flexibility in exchange for more sustainably low premiums. The net effect for life insurance mortality arbitrageurs, usually settlement companies, was a toxic, Trojan horse product. Performance 2010 followed the same pricing methodology as Performance 2009 but with more tweaks in the shape of the Policy Credit and policy charges. Protection UL 11 Pricing Protection UL follows the same type of pricing paradigm as Performance 2009 & 2010 in that it is composed of a relatively high policy charge structure and an offsetting credit. Whereas the credit in Performance 2009 & 2010 was called a Policy Credit, the credit in Protection UL 11 is called a Persistency Credit. Figure 1 shows Protection UL 11 annual policy charges and Persistency Credit 160,000 Protection 11 COI Protection 11 Policy Credit 140, , ,000 80,000 60,000 40,000 20,

4 Annual Policy Charges Figure 2 shows the net policy deduction in Protection UL 11 versus Performance 2008 and Performance ,000 Performance 2008 Performance 2010 Net Charges Protection 11 Net Charges 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Protection has a slightly different cash curve than the Performance line. While it maintains the focus on death benefit with relatively high charges up front and relatively low charges in the later years, Protection builds cash in a less linear fashion. As shown in Figure 2, its charges are lower for the first 8 years, which allows for slightly more cash accumulation, but it has much higher charges from years 8 to 20. In year 20, the Persistency Credit jumps drastically (note the jump in Figure 1), lowering the net policy deductions well below the Performance line for approximately 17 years. The net effect for the product is that has less cash value through year 20 and then the cash value grows explosively (compared to the Performance line) thereafter. The size of the Persistency Credit enables the illustrated premiums for Protection to be meaningfully lower than Performance in almost every scenario. Figure 3 shows the COI curves for Performance 2008 & 2010 against Protection. Protection s currently stated charge structure is higher than either of the Performance products by a substantial margin. Numerically, Performance 2008 had approximately $680,000 of policy charges (excluding premium loads) per $1,000,000 of net amount at risk through Age 100 on a 55 year old Preferred male. Performance 2010 had approximately $1,438,000 of gross policy charges per $1MM of NAR. Including the Policy Credit, the net deductions for Performance 2010 were approximately $691,000. Protection UL 11 has approximately $1,949,000 in gross policy charges and $705,912 in net charges including the Persistency Credit. The net result of higher base policy charges is a greater reliance on the Persistency Credit for illustrated performance. The Persistency Credit is by far the largest determinant for premium solves in Protection UL 11. If we assume that Performance 2008 serves as a benchmark of a reasonable charge curve given the design of the product (low cash, low premiums), then it is readily apparent that the Persistency Credit is more about

5 Annual Policy Charges offsetting the higher COIs in Protection than it is about the traditional use of a persistency bonus as an additional bump in crediting rate. The Persistency Credit effectively serves primarily to offset the higher COIs and, if it is large enough, to add a significant boost to cash values over the old Performance line. Figure 3 compares annual policy charges for Performance 2008, Performance 2010 and Protection UL ,000 Performance 2008 Performance 2010 COI Protection 11 COI 140, , ,000 80,000 60,000 40,000 20, Persistency Credit Language If the Persistency Credit is more essential to pricing in Protection than the Policy Credit was in Performance UL, then the question of what composes the Persistency Credit is paramount. The language in the illustration is as follows: Beginning in Policy Year 11, a Persistency Credit is added to your Policy Value on each monthly processing date. The Persistency Credit is guaranteed to be no less than 0.025% of the Net Policy Value. The amount of Persistency Credit that we declare above the guaranteed minimum will be determined in a uniform and non-discriminatory manner. We will determine the Persistency Credit taking into account our investment experience and other company factors, and policy owner actions such as the actual timing and amount of premium payments, policy lapse and reinstatement, loans and withdrawals, and contractual changes. The Persistency Credit in this illustration assumes that all nonguaranteed elements of this policy will continue unchanged, and that the policy owner s actions will not vary from those illustrated. There are a couple of key changes compared to the description of the Policy Credit in the Performance 2010 illustration language. First, the Persistency Credit language specifically mentions that the Credit will be applied taking into account our investment experience and other company factors. The Policy Credit language never mentions any factors outside of policyholder behavior. Second, the Persistency Credit has a guaranteed minimum amount of 0.025% of the Net Policy Value whereas the Policy Credit has no guaranteed minimum.

6 The Purpose of the Persistency Credit John Hancock outlines the goal of the product as follows in a brochure not to be used with consumers: The new Protection UL s primary objective is to provide death benefit protection for the lowest possible cost. To achieve this goal, we expect to invest the portfolio of the general account segment funding the product primarily in a diverse mix of fixed income assets, such as high quality corporate bonds, (rated A- and above) as well as number of alternative non-fixed income assets such as timber land, large-scale infrastructure projects, and agriculture. By investing in a broader array of asset classes, we expect to be able to diversify risk and generate returns that should help us to enhance the policy s expected longterm performance. The linkage between the alternative investment categories and the stated objective of death benefit protection at the lowest possible cost is clear. John Hancock makes the argument in two ways. First, that the alternative assets have historically yielded higher returns than fixed income assets. Second, a diversified asset base allows for less correlation to interest rates and more stable returns over the long-term. If these two points are true, then Protection UL 11 allows for lower premiums than its competitors on the basis that the investment portfolio backing the product will outperform the fixed income portfolios underlying competing products. Some of the alternative assets, like private equity and large-scale infrastructure, tie up capital for a substantial period of time before the full return is accrued and John Hancock expects to earn a higher return in exchange for illiquidity. The dual mandate of low early cash values (low policy liquidity) and the ability to quickly add lots of return at a later date cannot fit the normal CAUL structure. The simple interaction of policy charges and interest credits in a traditional CAUL provides smooth policy performance on an annual basis. The alternative assets partially backing Protection UL have choppy return profiles and John Hancock needed a way to provide a splash of returns almost immediately at a later date when the alternative assets were estimated to mature. The Persistency Credit fits the bill. As noted in figure 1, it has virtually no impact on policy performance for the first the first 20 years and then pours significant value into the contract thereafter. This return pattern matches the theoretical return profile of the alternative assets John Hancock specifically mentions long periods of illiquidity with large tail payoffs at varying durations. The Persistency Credit is an exceptionally innovative way to modify the traditional CAUL structure to incorporate the return profiles non-fixed income assets. The other input in the Persistency Credit formula is policyholder funding patterns. In the vein of the Performance line, Protection UL is designed to mitigate the impacts of funding patterns that may adversely affect John Hancock s profitability. The Persistency Credit was specifically designed so that policyholders have limited ability to change premium patterns to increase IRR on a mortality adjusted basis. John Hancock argues that other carriers charge more than they should on Current Assumption UL to offset the risk that clients exploit pricing holes in the product by changing the funding pattern. Because the Persistency Credit substantially mitigates or eliminates this risk, John Hancock can pass its reduced risk back to policyholders in the form of lower illustrated premiums. This represents an innovation in product design that other carriers would be prudent to consider because of its tangible benefits to both writer and buyer. The only losing party is life insurance arbitrageurs.

7 Annual Policy Charges Persistency Credit Pricing John Hancock has shed additional light on the mechanics of the Persistency Credit in supplementary pieces that simplifies the pricing story. The Persistency Credit formula is set at issue and the process for changing it would be analogous to changing non-guaranteed mortality charges, including John Hancock Board approval, notification of policyholders and subject to approval of state insurance commissioners. The formula itself is not disclosed, but it only has two mathematical inputs policyholder funding pattern and policy crediting rate. The fact that the formula is set at issue and is determined by two transparent factors implies that illustrations will accurately capture the real effects of changing crediting rate and funding pattern assumptions on performance. Producers can show Protection UL under a variety of different scenarios and can be confident that, unless the formula is changed, the illustrations are indicative of changes in future performance. The formula also sheds light on the relationship between the asset mix backing Protection UL 11 and the Persistency Credit. A priori, one might assume that the policy crediting rate is linked to the fixed-income assets and the Persistency Credit is linked to the alternative assets. The reality, however, is that the policy crediting rate and Persistency Credit are linked via the formula and neither fully determines the other. The crediting rate is the Persistency Credit and vice versa. The crediting rate doubles as the traditionally understood interest rate on premiums paid in excess of policy charges and also as the largest adjustable factor determining the Persistency Credit. The crediting rate s dual mandate makes it fundamentally different than crediting rates on other Current Assumption UL policies or market interest rates. The current Protection UL crediting rate is only comparable to other possible Protection UL crediting rates. Figure 4 demonstrates the effect on the nonguaranteed Persistency Credit ;of changing illustrated crediting rate assumption from the current 5.2% to the guaranteed rate of 2.5% 120,000 Protection 11 Current Rate PC Protection 11 Guaranteed Rate PC 100,000 80,000 60,000 40,000 20,

8 The dual mandate of the Persistency Credit as a COI offset and a return enhancer and the dual mandate of the crediting rate as a cash interest rate and determinant of the Persistency Credit implies that the Protection UL 11 crediting rate is, by far, the single largest factor in policy pricing. It follows that the performance of Protection UL 11 will be highly sensitive to changes in the illustrated crediting rate. Table 1 outlines the changes in illustrated premium assuming different interest rates at the onset of the policy for a sample client (Male, 55, Preferred). The sensitivities change at different ages and rate classes. Crediting Rate Performance UL Premium Protection UL Premium Performance UL Premium Incr. % Protection UL Premium Incr. % Current (5.0%/5.2%) 95,008 91,597 N/A N/A 4.0% 103, , % 15.8% 3.0% 113, , % 32.6% 2.5% 127, , % 94.9% Crediting rate sensitivity risk is universal across Current Assumption products. What makes Protection UL uniquely risky is not its level of sensitivity, but rather the fact that a client has no basis of comparison for the currently illustrated Protection UL crediting rate. The current rate (5.20% at the time of this writing) will almost certainly not move like other CAUL crediting rates or market interest rates because of its dual mandate. Producers cannot advise clients that the current rate is sustainable or unsustainable and clients cannot make a gut estimation of comfort about future illustrated returns. The only way for a client to understand the risk of crediting rate fluctuations is for the producer to illustrate many different crediting rates. Even then, a producer can t make a statement about the probability that the crediting rate moves lower or higher and with what magnitude. In short, the policyholder is flying blind when purchasing the product and trusting that John Hancock has set the current crediting rate at a sustainable long-term rate. This represents real risk that, arguably, is offset by lower illustrated premiums at the current crediting rate. Mitigating Protection UL 11 Sensitivity Risk The best way to reduce sensitivity in Protection UL 11 is to overfund the product by a small margin. Most of the risk in the product comes from the toxic effects of a reduction in the Persistency Credit and consequent increase in net policy charges per $1,000 of Net amount at Risk. Paying more premium into the policy will increase cash values and decrease NAR, thereby decreasing the product s sensitivity to changes in the Persistency Credit. There are two good rules of thumb to consider when funding Protection UL 11 to reduce crediting rate sensitivity. First, and most simple, illustrate with a premium stream that is projected to endow at Age 121. Second, illustrate the product at the premium level of the next-closest No-Lapse Guarantee product. Both methods usually provide an ample margin of error that will make sure the product is sustainable in all but the lowest crediting rate scenarios. In the event that crediting rates maintain current levels or increase, the client will have the opportunity to pay a reduced premium into the policy in later years. Protection UL also offers downside protection in the form of a flexible, shadow account based No-Lapse Guarantee provision. The duration of the guarantee depends on the level of funding, analogous to a traditional

9 NLG product. The shadow account can be extended to Age 121 if funding is adequate. Note that the shadow account is priced efficiently to approximately 50% Life Expectancy and a few years onward, but is extremely expensive to maintain thereafter. Table 2 - Guarantee scenarios for different funding patterns based on same client as Table 1 Crediting Rate Protection UL Premium Protection UL Guarantee Length Current (5.2%) 91,597 Age % 106,106 Age % 121,484 Age % 178,503 Age 94 NLG to A ,500 Age 121 Recommendations on Product Application and Illustration We believe Protection UL 11 should be an essential part of any client s portfolio but should rarely comprise the entire block of coverage. It is a powerful new tool to diversify exposure to economic conditions that might damage traditional life products and to potentially offer lower premiums over the long-term. Conversely, it is opaque, complex and untested compared to traditional UL products. Protection UL 11 s transparent metrics, crediting rate and stated mortality charges, are mechanically incomparable to other life insurance products. Selling Protection UL 11 is a statement of trust in John Hancock and exceptionally innovative pricing strategies that we believe may be poised to deliver increased benefits to clients. We believe that the best stance is to trust, but not completely. Fund Protection UL 11 with more premium than the bare-bones illustrations show, fully disclose crediting rate sensitivity to clients and use the product in conjunction with other products and product types. Following these rules of thumb will let your clients experience the potential upside of Protection UL 11 with hedged downside risk via over-funding and diversified exposure.

10 Common Misconceptions Misconception: The Persistency Credit is like a Participating Dividend This analogy was originally drawn before John Hancock explicitly stated that the formula of the Persistency Credit is based on the policy parameters of crediting rate and premium payment pattern. The most logical understanding of the Persistency Credit was as a new, non-guaranteed policy element that is based on something other than the general account yield and mortality experience. The opaque language in the illustration and product filing alluded to some sort of all-encompassing profit measure that would provide the basis for the Persistency Credit and immediately drew the analogy to a Participating Dividend. John Hancock dispelled that notion by stating that the inputs to the Persistency Credit are the same pricing parameters that determine performance in Current Assumption UL. As such, the Persistency Credit can be seen more as a new way to shape performance in a CAUL chassis than as a new type of product containing CAUL pricing with a Participating Dividend. Misconception: The Alternative assets backing Protection UL 11 inject more risk into the product The tacit assumption in the statement above is that fixed income assets are, almost by definition, less risky than anything else. The creative piece of Protection UL 11 is that it recognizes the inherent problems with traditional CAUL structure as a fixed income based instrument. Carriers have arguably been bolstered by the steadily falling interest rate environment over the last 30 years. Falling interest rates increase bond prices and add capital gains to coupon earnings. Carriers used bonds to hedge liabilities on UL products that guaranteed principal and some interest. As interest rates fell, the value of the bonds grew faster than the guaranteed principal of the policies. Carriers could maintain an earned spread on the bond yield but also had unrealized capital gains from the rising price of the bonds, providing an ample capital cushion should the carrier need to book it. The flip side of the coin is what happens when interest rates increase. Carriers are holding a book of bonds with a duration of 7.5 years, meaning that the price of the bonds change by 7.5% on average with each 1% movement in interest rates. Thus, rising interest rates mean drastically falling bond values in carrier general accounts. Carriers could be forced to make tough decisions about crediting higher rates to policies despite the fact that higher rates may be unaffordable. The truth is that no one knows how rapidly rising interest rates will impact carriers and product performance. Protection UL 11 is built with a liquidity profile that more effectively addresses the concerns a carrier might have when writing a UL product in a rising rate environment. It allows John Hancock to invest in less liquid, and potentially higher returning, assets that are not as correlated to interest rates. The basic structure has the potential to be more stable and to offer a life insurance policy that moves with the economic environment in a faster, more responsive way that Fixed UL with a traditional fixed-income backing can.

11 Annual Charges Per $1k NAR Technical Comments All Figures in sections 1 & 2 are based off of a 55 year old Preferred Male with $1MM of NAR. Tables 1 and 2 are from a 54 year old Super Preferred Male with a $10MM death benefit. Cash values in Figure 1.2 actually are from Performance 2010 but, as noted in the other charts and sections, the difference between the products would be marginal at most for illustrated purposes. Performance UL 2008 This product exemplifies the traditional Performance UL pricing chassis and was discontinued with the introduction of Performance UL The core idea behind the chassis was that Hancock would charge relatively more early in the life of the policy in exchange for lower charges in later years. The chassis presented a relatively linear cost curve compared to other carriers who built CAUL products with a charge structure that accelerated greatly in later years, mimicking observed mortality and the CSO tables. Performance UL also charged an 8% premium load in all years, on the higher end of the spectrum. Figure A1 shows the charges inside of Performance UL versus competing Product B, which is also geared towards death benefit protection but using a very different structure. Loads in Product B are 7% in year 1, 4% in year 2 and 3.5% years 3 and beyond. Figure A1 140,000 Performance 2008 Product B 120, ,000 80,000 60,000 40,000 20, The two products are clearly built with different paradigms. Performance UL has a charge curve on the basis of per $1,000 of Net Amount at Risk that is substantially below Product B. However, it also has higher policy charges and higher loads, so we can surmise that cash value in Product B is substantially better. Figure A2 shows

12 Policy Cash Surrender Value cash value performance for the two products. Performance UL has a premium solve of approximately $10,900 for a level pay for $100,000 of CSV at Age 100. Product B has a $12,826 premium for the same premium solve. Figure A2 Performance 2008 $10.9k Prem Product B $12.8k Prem Performance 2008 Match Product B 600, , , , , , The green line shows Performance UL with a $12,826 premium and a crediting rate equal to that of Product B. On an apples-to-apples premium basis, Product B still builds better cash value for the majority of years. We can attribute this to the completely different chassis structures. In short, Performance was built for inexpensive premiums and Product B was built to have an attractive cash value curve. Performance UL s chassis had other benefits. Illustrated premiums were relatively insensitive to crediting rate movements because interest credits on were relatively small in dollar amounts compared to policy charges. The product still often had competitive premiums even at guaranteed interest rate assumptions. Performance also was more conducive to funding patterns that mimicked the underlying charge structure, allowing for premium streams that were more tailored to a particular client s needs or amplified policy IRRs at and beyond Life Expectancy. Competing carriers often referred to Performance as a lapse supported product and, to some degree, they were correct. Performance s low cash value curve meant that surrenders were very profitable because the client could rarely recover basis in a level pay scenario. Performance also lacked the typical CAUL story of future 1035 flexibility since most of the premiums were eaten up by the elevated early charges and high policy loads. However, these downsides were offset by low, stable premiums (in varying interest rate environments) and the product successfully filled the gap between NLG and cash-rich CAUL.

13 Annual Charges/Credits Performance 2009 & 2010 The Performance line drastically changed with Performance 2009, although the changes went largely unnoticed in the retail market. The core Performance story stayed the same and the illustrated policy performance was virtually identical to Performance However, John Hancock made structural changes that added a new layer of complexity that became readily apparent in alternative funding scenarios. Performance 2010 followed the same basic chassis as 2009 with some modifications. Most CAUL products are composed of guaranteed and currently stated policy charges and a currently stated crediting rate that has a guaranteed floor. Performance 2009 had another element that was the primary driver of pricing. In addition to currently stated policy charges, Performance 2009 had an offsetting Policy Credit that served to effectively reduce the net amount of charges taken from the cash value in any given year. For instance, if the policy charges were $10,000, the Policy Credit might be $4,000, leading to a net deduction from the cash value of $6,000. The net deduction determined illustrated performance. Most producers were entirely unaware that the policy they sold contained more than just a single COI component. In order to maintain the same kind of pricing as Performance 2008, the gross policy charges were drastically increased over the Performance 2008 nonguaranteed schedule. Figure A3 shows the policy charges and offsetting Policy Credit for Performance Figure A3 120,000 Performance 2010 COI Performance 2010 Policy Credit 100,000 80,000 60,000 40,000 20, Illustrated pricing is determined by the net deduction to the policy, which is the red line (policy charges) less the green line (Policy Credit). Figure A4 illustrates the net policy deductions compared to Performance 2008.

14 Annual Policy Charges John Hancock intentionally built Performance 2009 & Performance 2010 to almost exactly mimic Performance 2008 in illustrated values but under an entirely different structure where the integrity of the pricing was built around the Policy Credit. Also, note above that the COI curve on Performance 2010 is slightly higher than Performance 2008 in later years. John Hancock gave Performance 2010 a 50bps crediting rate increase to offset the slightly higher charges and to refocus the product for younger ages. Figure A4 30,000 Performance 2008 Performance 2010 Net Charges 25,000 20,000 15,000 10,000 5, So what is the Policy Credit? The language from a Performance 2010 illustration is as follows: The nonguaranteed assumptions in this illustration include a Policy Credit. The Policy Credit is based on the Insured s Sex, if applicable, as well as Issue Age, Risk Classification, Policy Value, Net Amount at Risk, and the duration that the coverage has been in force. Changes to your policy such as amount of premium paid, timing of premium payments, lapse and reinstatement, loans, withdrawals, or any other contractual change initiated by the policy owner will impact the Policy Value. A reduction in Policy Value may reduce the Policy Credit. My read on the Policy Credit was a little more directed. I manipulated illustrations to try to figure out how it moved with different premium funding patterns. The results pointed to an obvious goal for the Policy Credit. If premiums were reduced below a certain threshold, the Policy Credit virtually disappeared. Large premiums would have to be paid thereafter to get the Policy Credit back on track. My feeling was that the Policy Credit primarily existed to deter life settling the contract. The vast majority of settlement providers fund the policy at the minimum level to gain the most mortality arbitrage possible. A funding pattern mimicking COI charges on Performance 2009 & 2010 would result in a loss of the Policy Credit, meaning a drastic increase in the net policy deductions, making the policy much more expensive than originally illustrated. The Policy Credit made

15 Performance 2009 & 2010 a very unattractive instrument for any premium design that fell substantially below the level premium solve and, by extension, a bitter pill for mortality arbitrageurs. I asked John Hancock about the Policy Credit and they essentially confirmed my analysis that the Policy Credit was primarily designed as a final stop-gap against life settlements and other mortality arbitrage situations. My gut feeling is that the Performance 2009 & 2010 Policy Credit is justified given that Performance 2008 s low tail mortality charges made it especially attractive to settlement funders. In short, Hancock exposed itself to mortality risk from the low COIs inherent in the Performance chassis and protected itself against certain types of adverse selection by building the Policy Credit to deter COI-based funding without negatively impacting the vast majority of policyholders. The downside of the Policy Credit for the retail client looking to hold the contract to maturity is twofold. First, the product is not as flexible as it purports to be. The Policy Credit can start to diminish after missing a few premiums and the amount of premium required to get it back on track can be excessive. Second, should John Hancock decide to arbitrarily change the Policy Credit the effect would like be adverse to the policy. However, note that the illustration outlines certain cases where the Policy Credit can be changed and virtually all of them are directly related to policyholder behavior. The language does not mention anything about investment performance or other external factors that the policyholder cannot control. My opinion is that this Policy Credit is built as a hedge against unprofitable funding patterns, not to hedge economic or mortality risk in the aggregate, and we can expect that the formula for determining the credit won t change. Performance UL 10 also contained a limited duration No-Lapse Guarantee feature that extended for the lesser of 30 years or to Age 90, assuming certain funding parameters were met.