Term Writers Watching Work On CSO Model Reg
Consistency and flexibility are points of discussion that are being raised as term and universal life insurance writers and regulators discuss the use of a new CSO Table in calculating reserves.
The National Association of Insurance Commissioners draft model, Recognition of the 2001 CSO Mortality Table for Use in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits model regulation, is currently being developed in tandem with a new 2001 CSO Table that is being readied for use.
Under discussion is a proposal that would require the same form of the 2001 CSO Mortality Table to be used for basic reserve and deficiency reserve calculations.
Either an ultimate or an ultimate/select option could be used for both types of reserves. The two options are different because a mortality slope in the ultimate/select table rises more steeply than the ultimate table. Consequently, if the ultimate/select version of the table is used for basic reserves, more reserves need to be set aside.
Companies have been choosing the form of the Table they will use since the 1980s, according to William Carroll, a life actuary with the American Council of Life Insurers in Washington.
Carroll says that, if for instance, companies have been using an ultimate table for basic reserves and select/ultimate tables with X-factors for deficiency reserves, they would now be required to use one table for both types of reserving.
X-factors are used to determine necessary reserves for the Valuation of Life Insurance Policies model regulation, or Guideline Triple-X. They are associated with the select table.
So, if companies are required to use one option, then they could face either higher basic reserves or lose the ability to use the X-factor.
For regulators, the matter is one of consistency, explains Larry Gorski, a life actuary with the Illinois insurance department. If a company is using a select/ultimate table to show that it doesn’t need to maintain deficiency reserves, then it needs to use the same table for basic reserves.