The Three Rs for Variable Products– RBC, Reserving and Regulation
Variable insurance products with guarantees could be impacted by two actuarial projects to establish capital and reserving requirements.
The American Academy of Actuaries, Washington, is currently working on these projects at the request of the National Association of Insurance Commissioners, Kansas City, Mo.
Work on the C-3 Phase II effort is focusing on interest rate and equity risks of variable products and guarantees associated with these contracts.
Comment letters suggest that concerns are “practical rather than conceptual concerns,” according to Robert Brown, vice chair of the Academys life capital adequacy subcommittee.
For instance, it has become clear that it will be difficult to make changes for year-end 2003 and that a more likely timeframe for Risk-Based Capital changes for product guarantees is year-end 2004, Brown adds.
Companies are also asking questions about how specific products and product features will be affected by any changes. In the case of one comment letter, the question was raised about how a product with a guaranteed minimum withdrawal benefit would be affected, Brown cites as an example.
Insurance trade groups contacted by National Underwriter say they are waiting to see what the final work products look like.
“The NALC still believes this formula is not ready for prime time. It is a leaky formula,” says Douglas Barnert, representing the National Alliance of Life Companies, Rosemont, Ill. However, Barnert notes that the concept is a good one even though tables and simplified factors for the RBC formula still need to be developed.
The American Council of Life Insurers, Washington, has no position at present, says William Schreiner, a life actuary. There is some concern about the potential for volatility associated with the guarantees, he adds.
A related project that the Academy is just starting to work on, according to Tom Campbell, chair of the Academys variable annuity reserve working group, is reserving requirements for guarantees.