This month, our CEO, Jay Judas, sits down with national lending and premium finance expert, Rebecca Rosofsky CFP® from City National Bank. The pair discuss the impact on rising interest rates on financing life insurance policy premiums, their membership in the prestigious Yale Study Group and the reason Rebecca would rather skip a restaurant meal and eat at home.
Jay: This month, I get to start off with doing some humble bragging. Rebecca, we know each other through our study group, the Yale Club Life Insurance Study Group. Our group has been around over 70 years and is known as the oldest and longest continuously meeting life insurance study group in existence and is made up of the who’s who of the industry. Each month, you and the other incredibly intelligent members of our group remind me that I only know a fraction of what I think I know and, frankly, I am surprised they offered me a try-out years ago and accepted me.
Conversely, you were a slam dunk to be a member because you are nationally recognized as an expert in premium financing and play a significant role in working with high-net-worth individuals in obtaining life insurance. Let’s begin by hearing about your employer, City National Bank, and your work there.
Rebecca: Jay first, thank you and I hope I can live up to your introduction. I am honored to have this opportunity and I was honored to be accepted by Yale Study Group. As you indicate, I am not a life insurance producer but believe, as a lender, I need to have an understanding of the insurance products, uses, benefits, and pitfalls. The Yale Study Group has been and continues to be an invaluable education for me- I’m the lucky one.
I should add I am the lender “formerly known as Ryan” and, when I went back to my maiden name, I confused a lot of people.
As for City National, it was established in 1954 by a group of underserved business people. City National prides itself on maintaining the feel of a hometown bank with big bank capabilities. Along with personal, private and business banking, City National makes available wealth management, brokerage and leasing services and software solutions. City National is a subsidiary of Royal Bank of Canada. As of April 30, 2022 City National Bank and managed affiliates report $90.9B of total assets, $80.0B of deposits, $59.9B of loans and leases, and $80.6B of assets under management or administration.
I joined City National because I was, and continue to be, impressed by its leadership starting with Kelley Coffey, who demands the best of all employees in their pursuit to provide effective client centric solutions. Sometimes, especially in my work, the client recommendation is not to proceed. Obviously, City National - any bank for that matter– only earns money if a client acquires a product. Clearly we want clients to purchase products and services. But as we have all seen in the financial services industry; there are times when sales and profit motives blind advisors. At all levels of the organization we are supported in providing client centric transparent analysis.
I like to say I sell control to control freaks. My job is to provide transparency on how the pieces of the puzzle fit together and agency for clients to make decisions based on the component parts of the puzzle they can toggle.
Jay: Technically, you are a banker with a specialty in lending. However, I was surprised to learn that you didn’t start out in traditional banking and lending. Tell me about your upbringing and the path that took you to being a part of the life insurance industry. Am I right to say that your father was an artist?
Rebecca: My dad always said to me “The only thing they can’t take away is your education” which is actually from the Sephardic Jewish Philosopher Maimonides. I think this message from my early childhood is the basis for how I have built my professional practice and why I wanted to join the Yale Study Group. My father has been described as “one of the key figures in twentieth century Chicago Art”. His schooling was interrupted by serving in the military during World War II from 1943-1946 but eventually received his BFA in 1949 and MFA in 1951. I’m certain that the education mantra was a result of what he saw in Europe.
My father was deeply affected by his time served and it was reflected in his art. He was a technical master but the subject matter was grave. He was part of a group dubbed the “Monster Roster” which include other influential artists like Leon Golub, Cosmo Compoli and H.C. Waserman, June Leaf, Don Baum and Nancy Spero. They were the precursors to the Chicago Imagist movement. As you might derive from the name, his work is riddled with brutish surreal political commentary. In short, not a childhood surrounded by fairy tale imagery. Perhaps this accounts for my ability to discuss difficult subjects with clients as a matter of course. While his work could be brutish and scary as a person he was more light-hearted. He taught evenings so he could paint by daylight in his studio which was the third floor of our home.
My summers were spent at Art School camps where he taught so I had wonderful summers at Ox-Bow in Saugatuck Michigan and Blackhawk Mountain School of Art in Blackhawk Colorado. I even had the fortune to live and go to school in Paris when my father received a Guggenheim foundation grant. My older brother was actually born in Italy because my father received a Fullbright to live in Rome. His work is still on display and Rahm Emmanuel – the former Mayer of Chicago chose his “striking but grim” Unemployment Agency” (1957-1958) from the Art Institute of Chicago’s collection to hang on the wall behind his desk at City Hall .
Jay: I want to get right into premium financing, a life insurance funding strategy that you have participated in for 23 years. You must see all sorts of premium payment designs combined with any number of insurance products. As I understand it, City National conducts an independent analysis of each prospective transaction so the client has additional information and helps keep you, as a lender, agnostic to the life insurance transaction. That said, you are an expert and I want to put you on the spot and ask you what sort of client is a fit for financing the premiums on their life insurance policy and who isn’t?
Rebecca: In general, prospective candidates have Net Worth’s in excess of $25MM and liquidity to meet stress-tested collateral over the lifecycle of the transaction. I have rules of thumb…
1) Is there an actual need for the insurance? In a wealth transfer scenario, which is the primary use case for financing, does a client should have a taxable estate?
2) Pay for the need, finance the aspiration. That’s a little tongue-in-cheek but if the insurance need is to keep a spouse in the house or pay for education –third party financing should not be an option.
3) Does the client have cash flow to cover a portion, if not all of the interest carry and liquidity to meet peak collateral over the lifecycle of the transaction? These strategies tend to have long lifecycles – often more than 10 years. It is not what is required in year one that is the issue – I am concerned with the clients ability to meet the peak collateral required in a stress tested scenario without impairing a client’s lifestyle. Clearly this is subjective and will vary by client.
My friend and professional colleague, Barry Flagg, presented at the 46th Annual Notre Dame Tax and Estate Symposium in 2020 where we discussed the Best Interest rules and we defined it as the intersection of a “trifocal lens.” I believe if you focus on the crossover it is obvious if financing is a reasonable solution for a given client or not.
Jay: Everyone is talking about the rising interest rate environment. Along with this, many life insurance products have a lag in being able to proportionately raise dividend and crediting rates. Plus, the restrictions that the National Association of Insurance Commissioners have in AG49 for how indexed universal life can be illustrated make it difficult to show the power of premium financing. What is your sense of what the current environment means for premium financing?
Rebecca: If you believe in modern portfolio theory, you fundamentally believe that a high quality diversified equity portfolio will outperform high grade bonds on average over time. With premium finance, people are concerned about absolute returns and absolute interest rates. For a strategy to work, what is critical, is the relationship between the returns - think option returns in an EIUL product - and the interest rate the bank charges (bond proxy assuming highly qualified prospect with liquidity that can obtain favorable loan terms). If the spread between the borrowing rate from the bank and the crediting rating in the policy is 200-300 basis points on average over time, the strategy should work. So while 6% or 7% interest rates sound scary – and they are, if the policy is returning 9-11% the strategy can work. What is overlooked often is how much the client paying in out of pocket interest to achieve that goal. Too many models ignore the cash outlay and focus on net death benefit IRR which is actually just the insurance IRR not accounting for interest.
AG49 and AG49-A create an interesting conundrum. The intention of the guidance was to create a level of protection for consumers and prevent illustration games. The real life challenge in the EIUL context is that; since projections are based on historic performance, and the performance of the given option is based on the budget available, and the budget for the option was determined in a historically low interest rates environment – the caps are dampened. With interest rates rising - interest rates are an indication of what a Carrier can expect to earn on the fixed account which is essentially the option budget- the budget option should increase and carriers should, in the future, be able to provide more attractive option parameters. The fundamental problem is that a premium finance projection, modeled responsibly, is going to show a rising interest rate environment and return based on caps that were priced on much lower option budgets.
To me, the illustrations and the modeling are directional – what is most important is maintenance and benchmarking against original plan objectives. This can get me started on a diatribe about how little strategies are monitored but for now let’s just say monitoring is critical.
Jay: I am envisioning the discussion on LinkedIn your comments will almost certainly spur when we post this interview! Okay, I will let you off the hook and won’t press you for your expert opinion any longer when it comes to premium financing. When we spoke a few weeks ago, you mentioned that it continues to amaze you how few women are client-facing in the life insurance industry. Even banking has significantly improved in its diversity efforts. How do you think the life insurance industry would benefit by more women joining in sales and leadership roles?
Rebecca: Jay, this is an interesting question because there are the obvious answers about the importance of diversity in the sales force and gender equality, but I think it’s not just women. If you look at the current industry salesforce, it’s pretty homogenous. I also think it’s oversimplified to say “women” because you could get a woman who behaves exactly like the prevailing sales force. To me, it is more of an issue of retelling the life insurance story from a multi-gender multi-cultural perspective. I have to admit I was surprised when I went to my first industry meeting to see how much of the message was around widows and orphans left to fend for themselves because the father/breadwinner passed.
I was reading the Life Insurance Need Gap published by Life Happens and LIMRA based on the 2021 Insurance Barometer and they report that 40% of Americans -102 million adult consumers - live with an insurance need gap. This breaks down as 73 million consumers that are do not own life insurance and 29 million consumers that have insufficient coverage. Broken own by gender and ethnicity is as follows:
I think the data speaks for itself.
Jay: You know I like to ask about an interviewee’s leisure time. Your leisure time made me exhausted with all of the activities you told me about and I know you’ll mention here. Plus, you have a son in college and a daughter who has just started her career. How do you keep yourself busy when you are not working?
Rebecca: Well, I need to take a moment to be a proud mama…my son is studying Computer Science and Applied Mathematics and my daughter is working in events and marketing at the Brooklyn Museum. They are amazing people! I’m an empty nester which was very strange at first – but I’ve definitely filled my time!
I am in two book clubs. One is a group of women friends and we focus on current women authors, the other is a group of male professional colleagues and we focus on, well, a very different genre. I try to make sure I don’t get stuck in an information bubble - these two groups definitely provide variety. I am an avid yoga practitioner. I thought that yoga was BORING until I started taking it from a teacher in Chicago named Allison English. I’ve been a devoted student for more than a decade going on retreats and attending seminars and workshops. I can honestly say she’s changed my life and I no longer have chronic pain.
In addition, I love to paddle board. I have a hard board I keep at a beach house in Michigan and a blow up board in the city. I paddle from April to October - wet suit required. I love to hike and ski. I love theater and art. My guilty pleasures are bad 70’s music and pet videos…yes I’m that person that sends the stupid video of the dog and deer frolicking in the backyard to ABBA, a cat and dog snuggling or a fainting goat.
Jay: I know you are well-prepared for my restaurant question because you asked if you could take a different approach and tell a story about what you and your boyfriend have been doing for the last couple of years instead of going to a lot of restaurants. This means I don’t have to remind you to not name a steakhouse or a steak dish!
Rebecca: My poor children – I am NOT a natural cook. I pathetically fed them peanut butter lollipops for lunch and brown rice feta cheese and kale for dinner…they tell horror stories. My neighbors warned each other, TO MY FACE, not to eat my cooking!!! My boyfriend and COVID has changed that. He loves to cook. When COVID hit and my dinner nights couldn’t be filled in with restaurants, I started watching cooking shows with him. He introduced me to the Pasta Grannies - a YouTube series featuring these fabulous Italian Nona’s who literally don’t use bowls half the time, take a hand full or flour, a little water on a plank board and make a meal for 20!
We later discovered Taco Chronicles. The gauntlet was thrown - if these Nona’s could do it, we had to try. We have spent the last two years going to farmers markets, finding whatever is fresh and figuring out how to make a delicious meal out of ingredients as close to the source as possible with as few ingredients as possible. We make our own pastas and tortillas - we bought a tortilla press! I actually prefer NOT to eat at restaurants at this point. The good news is that we’ve mostly had success. Our memorable error was a meal of just sunchokes after our farmer’s market friend, Steve, shared the virtues of sunchokes and their long shelf lives. While he has a point on shelf life – I would advise against an entire meal of sunchokes - they should be eaten in moderation.
 Corbett, John and Jim Dempsey, Jessica Moss, and Richard A. Born. Monster Roster: Existentialist Art in Postwar Chicago, University of Chicago Press: Smart Museum of Art, 2016 & Boris, Staci. "Seymour Rosofsky," in Art in Chicago 1945-1995, Museum of Contemporary Art, ed. Lynne Warren, New York: Thames and Hudson, 1996, p. 281. Retrieved August 22, 2018.  Caro, Mark. "Mayor Emanuel a locavore when it comes to the artwork hanging in his City Hall office," Chicago Tribune
Since its inception, Life Insurance Strategies Group has solely focused on the individual high net worth life insurance market. We do not sell products. This allows us to offer unbiased, pragmatic advice. Visit us at www.lifeinsurancestrategiesgroup.com.