Regulators Tackle VA Reserving

A decision was made to change some wording to Actuarial Guideline 34, which requires a stand-alone asset adequacy analysis be performed for variable annuities with guaranteed minimum death benefits. Asset adequacy tests determine if a companys assets are sufficient to back the obligations it has assumed.

Regulators are trying to make sure that, in general, variable annuities, and, specifically, dollar-for-dollar annuity contracts, are properly reserved for. Dollar-for-dollar contracts allow for significant withdrawals of cash so that a small amount of value can be kept on the books to ensure continued life insurance coverage.

Regulators also discussed a project that addresses risk-based capital requirements for products including variable annuities with guarantees. They received a report from the AAA on the issue, formally known as the C-3 Phase II project.

The charge is calculated by taking the total asset requirement, subtracting the reserve in order to arrive at the amount that will be used to calculate the RBC charge. Factors would be used to establish the total asset requirement.

But insurers have raised concern that the charge would create volatility when markets are volatile. Additionally, they question the proposal because the factors have not yet been finalized. They say insurers need to see them before deciding whether to support the project. The AAA says the factors will be ready shortly.

The proposal was received and released for public comment for a 60-day period.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 3, 2003. Copyright 2003 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.