Oltb

Hi

It says that all life insurance protection business written after 1/1/2013 is no longer classified as BLAGAB but OLTB.

There is a definition about the business being where benefits cannot exceed amt premiums paid except on death or incapacity.

So what kind of products is this actually referring to?

Then they say that taxing this under BLaGaB created a barrier to entry for new entrants since they would have to price on gross expenses. This is why they moved it to OLTB. Why is this same barrier not a problem for all the other types of business in BLAGAB? Eg annuities?

Thanks

 

I'll have a go at why the there is a barrier to entry for protection business in BLAGAB.

For XSE companies, expenses are gross of tax, and for XSI, expenses are net of tax. A new entrant is very likely to be XSE due to high expenses to set up the company, and pricing at XSE (gross expenses) is a disadvantage as expenses are important compared with income for protection business.

This is not a problem for savings contract, as income as more important compared with expenses for those contracts. Hope this helps.

 

These are Protection Business (e.g. term assurance and its variants) and are generally low-cost.

Put in perspective; for example, a 10-15yr term assurance with sum assured £100k could be secured for a few quit (4 or £5 monthly?). This is because the real risk transfer is mortality or disability with nearly no investment/savings element. However Income Protection (healthcare product) could be a tricky one, it can be expensive because of complexities/underwriting/.... for tax purposes though, this has long been part of OLTB.

To add to Flamy's points;

The fundamental issue is premium elasticity to small changes in taxes & expenses in the pricing basis. I gave examples in an earlier thread, see link below: http://www.acted.co.uk/forums/showthread.php?t=7419