NU Online News Service, Dec. 1, 2003, 6:05 p.m. EST – The New York State Insurance Department has sent life insurers a letter giving them more information about how it wants them to compute the amount of reserves they need to back the “guaranteed living benefits” sold along with variable annuities.[@@]
In most cases, the computations must assume a 20% drop in the market value of both bond fund and stock fund assets.
The New York department now requires insurers under its jurisdiction to submit actuarial opinions and memoranda for all VA living benefits business.
Although the new department letter provides a step-by-step numerical example of how to compute living benefits reserves, the department still is asking affected insurers to describe their own methods for calculating living benefit reserves in their actuarial memoranda.
The current guidance “is intended to be a short-term solution, until the [National Association of Insurance Commissioners, Kansas City, Mo.,] adopts a permanent solution for reserves that considers the risks in such product designs,” according to officials at the New York department.
An affected insurer might be able to reduce the amount of common stock risk factored into living benefit reserve computations if it “employs dynamic hedging techniques continually throughout the year in a manner satisfactory to the superintendent,” the officials write.
The New York department is asking life insurers to direct any questions about the guidance to Michael Cebula, the department’s supervising life actuary.
The department has posted the living benefits guidance at http://www.ins.state.ny.us/acrobat/res12.pdf