VA Guarantees, Shadow Accounts Debated By Regulators

By

Reserving for guaranteed living benefits in variable annuities may be clarified if a proposed actuarial guideline advances toward adoption by the National Association of Insurance Commissioners next week.

The draft of the Reserves for Variable Annuities with Guaranteed Living Benefits actuarial guideline, otherwise known as Actuarial Guideline MMMM, has been under consideration by the Life & Health Actuarial Task Force of the National Association of Insurance Commissioners, Kansas City, Mo., for four years.

Last week, LHATF adopted the draft. It will be reviewed by the NAICs “A” committee and could be fully adopted and ready to implement by year-end.

Inclusion of an asset adequacy test to make sure that reserves are sufficient for these product guarantees helped regulators reach consensus on the draft guideline. It would require that an appointed actuary must perform a standalone asset adequacy analysis of a VAGLB reserve.

In recent months, guarantees in annuity contracts have taken on added significance when a precipitous stock market decline made guaranteed living benefits in variable annuity contracts more valuable.

Separately, a minimum nonforeiture project for universal and variable universal life contracts with secondary guarantees, has regulators divided over whether work on the issue should be advanced. A secondary guarantee is any provision that guarantees that a policy will remain in force if in the absence of that guarantee, the contract would have been terminated.

During a recent discussion on the issue, John Hartnedy, deputy insurance commissioner with the Arkansas Insurance Department, noted company concerns regarding the possible administrative costs for companies trying to comply with the model regulation draft and asked regulators “why do we continue to pursue this when there is a major administrative function that is driving up the cost of the product?”

But Frank Dino, a Florida regulator who is heading up the effort to develop a model, said that if UL policies are being sold with long-term guarantees, then in effect, they are akin to whole life policies and should be reserved for as such.

Regulators said that when the issue has been raised previously, it was considered important enough to continue work on the project.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 28, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.