Revised GMDB Reserving Is Advancing

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Revisions to a proposed actuarial guideline that interprets valuation for reserves for minimum guaranteed death benefits in variable annuity contracts is advancing toward a year-end approval by state insurance regulators.

A revised Actuarial Guideline 34 would apply to VAs with GMDBs that potentially could exceed account value. There is concern that in policies such as dollar-for-dollar contracts, a small account value could be retained by the contract holder locking in the higher GMDB obligation.

The draft revision would apply to contracts that include return of premium, roll-ups, ratchets and resets. It would only apply to group VA contracts subject to the Commissioners Annuity Reserving Valuation Method.

Wording in the Guideline cautions that actuarial judgment is needed and use of the guideline should be considered carefully in situations such as when the market and, consequently, underlying funds drop, causing a reduction in the net amount of risk.

The draft document squeaked through the Life & Health Actuarial Task Force of the National Association of Insurance Commissioners and sailed through LHATFs parent, the Life & Annuities “A” committee.

The revised draft will be reviewed and could be adopted during the winter NAIC meeting later this month.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 26, 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.