Data & Research January 11, 2018

Mortality Shifts in 2016 Largely Offset 2015 Movement

During 2016, mortality improvement in older age groups offset large mortality increases, mostly due to external causes in middle age groups, according to the Society of Actuaries.

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The rate of overall mortality improvement has slowed in the most recent five years, according to the latest mortality table analysis published by the Society of Actuaries (SOA).

SOA researchers created and released their latest report to provide insights on the historical levels and emerging trends in U.S. population mortality. The most recently released U.S. population mortality experience from 2016 has been incorporated and added to prior available data to enable analysis of mortality experience over the period 1999 to 2016.

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Turning to the fresh cut of the data, SOA finds the overall age adjusted mortality rate for both genders from all causes of death decreased by 0.6% in 2016.

“This decrease in overall mortality may seem to run counter to the CDC’s report that life expectancy at birth declined 0.1 years in 2016,” researchers note. “Generally, a decrease in the mortality rate would be expected to produce an increase in life expectancy. However, both figures are correct. In this respect, 2016 was a somewhat anomalous year.”

SOA researchers explain how, in most years, when age adjusted mortality rates decrease, life expectancy at birth would increase. Conversely, when age adjusted mortality rates increase, life expectancy at birth would decline. This is what occurred in 2015, SOA says, when age adjusted mortality increased by 1.2%, and life expectancy at birth declined by 0.1 years.

“The anomaly that occurred in 2016 is explained by the differing impacts on life expectancy of mortality rate changes of different ages,” according to SOA’s reporting. In 2016, increased mortality rates in the younger and middle ages (mostly due to accidents) reduced life expectancy at birth more than it was extended by mortality improvement at older ages. However, the overall age adjusted mortality rate for the entire U.S. population did decline, by the 0.6% cited above.

According to researchers, the practical outcome here is effectively that the overall decrease of mortality in 2016 reversed the experience of 2015. Mortality improvement in older age groups offset large mortality increases, mostly due to external causes, in middle age groups, SOA notes. All age groups, except ages 15 to 24, had lower mortality in 2016 than 1999.

Additional findings dissect mortality by gender, showing female mortality is lower than male mortality for all causes of death except stroke, which is similar, and for the combination of Alzheimer’s and dementia, which is higher. SOA further finds female-to-male mortality is comparatively much lower for external causes of death (accident, assault, and suicide) than natural causes of death.

The full analysis can be downloaded here.

Compliance January 11, 2018

With SEC Move Pending, New York Joins Other States Making Fiduciary Reforms

Regulatory developments in Nevada and New York show inaction at the federal level on clarifying advisers’ and brokers’ fiduciary duties is leading to a patchwork of state-by-state approaches to mitigating conflicts, real and perceived. 

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A team of attorneys with Drinker Biddle published a new client alert, highlighting what for some advisers will likely be a worrying trend of individual states taking regulatory action to address what consumer advocates consider to be unacceptable conflicts of interest existing in the investment and insurance brokerage industries.

As laid out by the Drinker Biddle attorneys, on December 27, 2017, the New York Department of Financial Services (NYDFS) proposed new consumer protections in life insurance sales that would adopt a “best interest” standard for sellers of life insurance and annuity products.

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“In its current form, the proposal raises a number of issues for producers and life insurers and annuity writers,” Drinker Biddle attorneys warn. “If adopted, the proposal would establish a New York-specific standard for insurance licensee conduct by expanding the scope and requirements of New York’s suitability regulation, which currently applies to annuity contracts. This is consistent with New York’s approach to the regulation of other issues, such as cybersecurity, where New York has acted apart from its state regulator peers and the NAIC, and essentially forecloses the prospect of a national standard.”

This development in New York State is interesting, given that reports have started to emerge to the effect that the U.S. Securities and Exchange Commission (SEC) may be taking over the reins from the Department of Labor (DOL) in deciding how to proceed with the Obama-era fiduciary rule expansion playing out in the background of this entire matter. Indeed, as the Drinker Biddle attorneys see it, the New York proposal “will overlap in part with the DOL fiduciary rule and a soon-to-be-proposed SEC rule as well as related standards/proposals in states such as Nevada and Connecticut, raising potentially conflicting requirements, compliance challenges, and enforcement uncertainty.”

Important to note for readers of PLANADVISER, the proposal “does not change the existing suitability rule’s exemptions except to expand them, along with the overall change in scope, to include life insurance policies used for any of the exempted purposes.” Thus, according to Drinker Biddle, the regulation would continue to exempt policies/contracts used to fund qualified retirement plans, Employee Retirement Income Security Act (ERISA) plans, and employer-sponsored individual retirement accounts (IRAs). The proposal “also would not apply to sales of mutual funds or other securities, unless related to an annuity or life insurance product,” they suggest.

“For all other sales, the proposal would require licensees to apply a standard very similar to the DOL’s best interests standard, as well as the ERISA prudent person rule,” the attorneys note. “The proposal provides that a recommendation is in the best interest of a consumer if it is in furtherance of the consumer’s needs and objectives and is made without regard to the financial or other interests of the producer, insurer, or any other party.”

As the attorney sees it, because the proposal excludes ERISA plans, deferred compensation arrangements, and employer-sponsored/maintained IRAs, it avoids a direct clash with the DOL’s fiduciary rule. “However, there is a fairly substantial amount of overlap between the proposal and the DOL rule because the proposal would apply to IRAs not associated with a plan sponsor,” they warn.

The attorneys further explain that the SEC just recently updated its regulatory agenda to include plans to propose a uniform fiduciary standard for advisers and broker/dealers within the next year, potentially as early as this spring. “Unlike the DOL’s fiduciary rule, the proposed SEC rule would apply to all investor accounts, not just to retirement accounts,” the attorneys observe. “The SEC Chairman has previously stated that the SEC rulemaking will supplement, rather than replace, the DOL’s fiduciary rule. The sale of variable annuities and other insurance products that include a securities component presumably would be subject to the rule.”

A long list of potential implications and difficulties are listed by the Drinker Biddle attorneys as potential outcomes of a new New York standard. Among these is the fact that the proposal “might be construed to create a continuing duty to monitor and provide advice after the sale. In contrast, the DOL rule allows the person making the recommendation to limit or disclaim a duty to monitor.”

“The proposal also could be interpreted to potentially impose a fiduciary obligation on insurers/annuity writers even if the producer did not have actual or apparent authority to act on behalf of the insurer/annuity writer, and when the alleged conduct occurs after the point of sale,” the attorneys warn. “This may create more exposure for insurers/annuity writers in litigation relating to a producer’s alleged misconduct.”

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